View Point: ‘SME sector should get 6 months to ingest complexities of GST’


In its bid to get the maximum number of firms and individuals under the tax bracket, the Union government is boldly going ahead with the implementation of the game-changing reform of Goods and Services Tax (GST). This sort of tax disruption, virtually unprecedented in the country, might boost the indirect tax collections but the revenue […]


MSME-SEctorIn its bid to get the maximum number of firms and individuals under the tax bracket, the Union government is boldly going ahead with the implementation of the game-changing reform of Goods and Services Tax (GST). This sort of tax disruption, virtually unprecedented in the country, might boost the indirect tax collections but the revenue increase, many predict, might be a short-lived one.

The GST law brings entities and individuals with an annual turnover of Rs 10 lakh under its ambit. For North-Eastern states, the limit has been reduced to Rs 5 lakh. These conditions have set alarm bells among SME (small and medium-sized enterprises) players – which had been exempt from payment of any excise duty if their total turnover did not exceed Rs 1.5 crore. Now, they too will come under the GST umbrella. While this may boost tax collections in the short-term, in the long run it might overburden these firms. Already, a number of SME associations are questioning the GST, claiming that the structural and legislative layout of the tax regimen is such that it might take a heavy toll on a lot of small players within the SME domain.

It is still not too late for a course correction. As Rajya Sabha MP and Essel Group Chairman Dr Subhash Chandra had tweeted on Saturday, the government could provide a buffer period of six months to SME firms from the date of implementation of GST. During this buffer period, Dr Chandra suggests, none of these enterprises should be penalised for not complying with the GST.

During this period these small firms could pick up the technical ropes, get their accounting framework in order and understand the filing nuances under the law. Side by side, the government can initiate dialogue with the different sectoral SME associations to come to grips with their business cycle and tweak the rules to facilitate a smooth and hitch-free transition. Contrasted with the organised sector, which can lay claim to a pool of tax practitioners and chartered accountants, the SME sector is comprised of small retail and wholesale organisations often operating from rural areas of India where even Internet connectivity is almost non-existent.

Apart from that, these firms, for ages, have been operating on cash, without having dedicated resources for filing accounts and tax returns. A learning period of six months will be an enabler in the long run for the government as the SME sector will not only come out unhurt from it but will also get equipped to handle the complexities of the GST.

Experts are suggesting that firms registered in multiple states will have to file 37 returns on an annual basis vis-à-vis the current requirement of two returns. It will unwise if the government choses to ride roughshod over the concerns of the SME sector. It commands a formidable share of 30% of India’s GDP and currently makes up for about 45% of the country’s exports. It also provides employment to over 11 crore people in India, most of them concentrated in northern Uttar Pradesh and West Bengal.

Therefore, it might be prudent for the Centre to keep in mind the interests of this crucial sector – which was also impacted heavily during demonetisation. Before it is too late, the Union Finance Minister should green-flag a six-month buffer period for the small business category, say industry experts, echoing Dr Chandra’s views.

Source: DNA India

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