GST & MSMEs | Impact assessment

On August 3, 2016 Rajya Sabha has finally passed the much awaited 122nd Constitutional Amendment bill which allows GST to be implemented. It took around 16 years, since GST first got conceptualized by Vajpayee govt, but better late than never. Finally the Bill has been passed unanimously in the Rajya Sabha by support of all parties, except for  AIADMK who opposed the Bill and staged a walkout.

It is one of the biggest tax reforms in India since independence. GST is going to change the way business is being done in India. It will create a single common market in country, which is currently divided into states. Let’s quickly see how GST will impact MSMEs –

GST’s impact on MSME sector of India:

• Once implemented, GST will lead to abolition of 17 indirect taxes, such as CST, state level sales tax, Octroi, stamp duty, entertainment tax, taxes on transportation etc. Hence compliance cost will get reduce substantially, which will make life easier for MSMEs

• It will increase the efficiency of manufacturing sector as it will address the cascading of taxes

• It will reduce the logistics cost, will allow free movement of goods across India, and boost competitiveness amongst MSMEs

• It will enable SMEs to avail input credit for taxes paid on procurement such as inter-state purchases, import & local purchase. In current VAT system, Central Sales Tax (CST) is levied on interstate purchase, which is not available as input credit to the buyer, hence increases the purchase cost.

• In current system, SMEs lack the infrastructure to open the stores in different states to avoid the impact of CST ( Central Sales Tax). With GST, SMEs will get full input tax credit and hence neutralizing the impact and increasing the competitiveness of products.

• It will boost Make in India & ease-of-doing-business campaign, eventually benefiting MSMEs.