GST will simplify setting up of SMEs and MSMEs as procedural fees and costs of compliance with the overall indirect taxation framework are set to shrink significantly. A unified tax system across states will ensure appropriate transfer of tax credits irrespective of the buyer and the seller’s physical locations.

Elimination of entry tax at state borders will lead to increased efficiency of inter-state logistics. Newer supply chain algorithms will emerge to map the new framework and minimise landed cost.

SMEs with annual turnover of less than Rs 50 lakh need to pay only a flat tax rate capped at 2.5 per cent of turnover rather than on the entire value of supplied goods and services.

GST has also done away with the unclear distinction between goods and services. This will go a long way in reducing litigation and tax-evasion opportunities. GST requires every tax-paying entity to self-assess tax and file its returns on a monthly and an annual basis. Returns are to be filed electronically which will reduce errors and lapses.

An evaluation system for tax-paying entities has been proposed, under which every such entity will receive a GST-compliance score. As per the proposal, these scores will be updated periodically and be made available in the public domain. This will allow GST-compliant SMEs to establish credibility with potential clients and other stakeholders.

However, certain hurdles remain for SMEs. Currently, no excise duty is payable by manufacturers with gross turnover under Rs 1.5 crore. But under GST, any entity that supplies goods and services and whose turnover exceeds Rs 20 lakh will have to register in every state where it conducts business.

For special category states, the turnover threshold is Rs 10 lakh. Another concern for SMEs is that under the new regime, buyers of goods and services are totally dependent on sellers for input tax credits.

SMEs have limited resources and influence to follow up with their vendors and suppliers for the purpose of ensuring tax payment and compliance.

Unlike the current excise regime, GST will make ‘stock transfers’ to own branches taxable. With GST being paid on the date of the transfer but credit becoming available only when the stock is liquidated by the receiving branch, cash flows could be impacted. GST heralds a turning point in India’s taxation norms and policies.

Its key objective is to unify India into a single market by eliminating tax-driven geographical fragmentation.

Successful implementation of GST will reduce the complexity resulting from multiple state and central indirect taxes, various levies and exemptions and sub-optimal application of input credits across goods and services. While a change of such magnitude may run into some teething issues, it is undoubtedly an extremely significantly move that is set to alter how business is conducted in the world’s largest democracy.

Source: The Economic Times