The arrival of Goods and Services Tax (GST), a single window taxation system, is supposed to help SMEs which are often burdened with taxes and its compliance. Whether the GST will be a boon to SMEs or not is still to be seen, but it is expected that all the states will pass this Constitution Amendment Bill in their respective Assemblies, helping in initiating a single window indirect taxation system.

With over 51 million SMEs in India, it contributes 50 per cent of the industrial output and constitutes India’s 42 per cent export earnings. Thus SME, the leading employment generating sector other than IT, holds the key in the post-GST era and understanding of its impact.

Marginal reduction in tax payments

For most SMEs, tax payment is a big issue when the organisation is yet to flourish. Before GST, business organizations having a turnover of more than Rs 5 lakh had to pay VAT registration fee. With GST, the lower ceiling for such businesses will be Rs 20 lakh (Rs 10 lakh for NE states), providing a huge relief to young entrepreneurs, allowing more categorical investment, leaving a room for reaping benefits in the near future.

The CEO of Honcho Commercial Pvt Ltd, Tanay Ghosal says, “Exemptions up to Rs 20 lakhs, along with the registration required for individual or company having a turnover of Rs 20 lakh or above which was previously Rs 10 lakh will help the startups. All SMEs will benefit as they would not need to register if they have a turnover less than Rs 20 lakh.”

Advancement in logistic application and faster delivery of goods

The GST bill ensures that a company or organization does not need to pay any entry tax to manufacture or sell any product in India. Bureaucratic complication is considered as the biggest problem for SMEs, where socio-economic and political hurdles block and lead to wastage of real time, money and human resources.

Post GST, a centralized registration will ease the whole process for small business owners. For SMEs, this will not only help is diversification of the audience, but also bring a competitive market.

Alkesh Kakarania, an entrepreneur, who is associated with an iron manufacturing enterprise and owns a start-up which focuses on plastic recycling and trading of plastic products says, “I do not need to submit excise return, VAT return and service tax separately every month and only books for GST has to be maintained. For interstate purchase previously we had to pay 2 per cent CST + 5 per cent VAT + 2 per cent Entry tax. States had different entry taxes, which varies from 1 per cent to 14 per cent, due to which there is an increase in the cost. Now with one point taxation it will be cost effective for me.”

Another big plus would be the convergence of goods and services. With no further ambiguity between goods and services, SMEs will have a clear picture about what taxation would look like for them.

Advantages of input credit system under GST

Under the VAT scheme, SMEs are rather restricted in reaching out to the clients and customers. One of the reasons is the clause of Central Sales Tax (CST) on inter-state sales, where input credit is not offered to the buyer, resulting in increasing cost at the buyers’ end.

There is no denying that SMEs have to look forward to having the right infrastructure in different states and stock-transfer the goods, however, the overhead cost will certainly be adjusted or neutralized with this input tax credit procedure.

It is expected that restructured framework will be a simplified rate structure with minimal exemptions, in the process, reducing disputes from classification of products.

According to Shreyasee Ghoshal, tax lawyer and DDC consultant, “The dispute is in administering collection of tax in various fields like availing credit, determination of manufacture of goods, determination of value of goods and classification. Hopefully in the coming days, with detailed announcements, collection of taxes under GST will be much easier. According to one report, appeals and litigations pending in Customs, Central Excise & Service Tax Appellate Tribunal (CESTAT) is nearly one lakh. GST will help in these pending litigations.”

Challenges ahead

However, there will still be some challenges for the SMEs under GST. As GST regime would not differentiate between goods made by a SME and goods made by MNC, SMEs will have to compete with the large enterprises. Enterprises, which deal with direct supply to end users, will experience the higher cost of products. The case of reduction threshold is another key concern as the exemption limit is significantly lowered in GST and large enterprises will definitely have extra edge over SMEs.

Under GST, the Central government will continue imposing excise duty on petroleum products like petroleum crude, high-speed diesel, motor spirit, natural gas and aviation turbine fuel whereas state governments will impose VAT as stated before, the petroleum products in particular.

The exclusion of these products from the GST will have a negative impact on SMEs which are a part of the fertilizer industry and others. There has not been a clear cut discussion with regard to 1 per cent origin tax as well as increased cash flow issues in case of GST payable on stock transfers. No doubt, the entire economy would take time to adjust with the new procedure.

Source: Economic Times