How GST Has Impacted the Small and Medium Enterprises in India

How GST has impacted the SMEs in India


“You cannot make progress without making decisions” – Jim Rohn.

This quote makes complete sense when we talk about the economic scenario of India. Countries across the globe were already getting on the list of those that had implemented GST in their economic structures while India was still pondering over the possibilities since 2000. It took 17 years of discussions and reasoning as to why India needed to do away with the contemporary taxes in effect and implement GST into the economy for a better future. Governments changed multiple times over the years, and while several committees and panels favored it, there was opposition as well. Fortunately, a decision was made on Sept 8th, 2016 and as a result GST was implemented on July 1, 2017.

The report card after a year renders the after-effects of GST implementation in a bright light. The government was wise in its decision to recognize numerous GSPs (GST Suvidha Providers) to help taxpayers with their GST compliance. Taxpayers and the Government have both benefited in many ways from an all-round development model, but can we say the same about the Small and Medium Enterprises (SME) of India? Has this change been easy on them, especially when SMEs have always been one of the key drivers behind the GDP of the country? To understand why we are emphasizing on the importance of SMEs and discussing how they have been impacted by the GST regime, let’s delve into some significant facts pertaining to the same:

  • 95% of the total industrial units in India comprise of SMEs.
  • Next only to agriculture, small and medium enterprises employ about 40% of the country’s total workforce.
  • SMEs have a growth rate of over 10%.
  • 11% of manufacturing GDP and 24.63% of the service sector GDP is contributed by small and medium enterprises of India.

The bottom line is, SMEs are vital for the country to maintain and strengthen its growth rate on a global scale. Keeping this in mind, the Government has been pushing them forward by bestowing upon them, plentiful conveniences under the GST regime. Expectedly, 71 percent of the surveyed SMEs in India expressed ‘optimism in the economy’.

Positive Impacts of GST on SMEs:

  1. Easy Registration and filing:

    GST portal allows for hassle-free online registration within minutes. This ensures timely receipt of the certificate and helps avoid any bureaucratic interference. The portal serves as a one-stop destination for all tax filing requirements.

online GST registration in India

  1. Higher threshold for registration requirements:

    While small and medium scale traders were required to register under VAT if their annual turnover was over INR 5 Lakhs, the GST regime expects them to register only if the turnover is more than INR 20 Lakhs in a year (INR 10 Lakhs in special states). This has made it easier for small industries, especially start-ups, to flourish easily without stressing over the need to register under the time-intensive taxation system and stay focused on their core business.

  2. Reduction of tax burden due to cascading of various indirect taxes:

    The unification or subsuming of all the indirect taxes like Excise Duty, Service Tax, CST, VAT, etc. under one common GST has made it easier for start-ups and SMEs to easily understand the system of taxation and comply with the guidelines. It brings transparency and ease of doing business to a greater degree.

  3. Input Tax Credit:

    There is a provision for businesses to collect Input Tax Credit when certain prerequisites are satisfied. This enables the already cash-starved start-ups and small-scale establishments to reclaim part of the taxes they have paid, and invest it back into their business.

  4. Extended market-base:

    Inter-state trade has ceased to be a tedious affair under the GST regime, making it uncomplicated for small-time traders to expand their horizons across the country. The doctrine of having an identical rate across the country has facilitated more and more businesses to trade across the length and breadth of the country. Furthermore, low-cost imports are easy as the rates on imports and exports are now the same. This has also provided them with a level playing field to prove their worth and compete against the mighty giants.

  5. Easy availability of raw materials:

    The expulsion of Excise Duty, 2% CST on inter-state sales, and the reduction in freight costs have made it hassle-free for traders to procure raw materials from far-away states at relatively lower costs.

A Mix Bag of Opportunities and Challenges

Rajeev Dimri, Leader, Indirect Tax, BMR & Associates LLP, said that GST throws a mix bag of opportunities and challenges for SMEs to explore. Without a hint of doubt! While there is no dearth of opportunities, there are certain limitations too that come along the way, making the road to glory challenging. Of course, double taxation has been done away with, but manufacturing start-ups have been made to register under GST if their annual turnover exceeds 20 Lakhs whereas earlier they had to pay Excise only if the turnover was over 1.5 Crores. A unique situation arises when a registered business files returns monthly but some of its vendors file returns quarterly under the composition scheme. How is the business expected to match the inputs and avail Input Tax Credit?

In addition, numerous iterations and revisions in the GST laws have left many business-owners baffled and even many CAs confused at times. So many returns to file, so many due dates, and the pain of integrating GST into every aspect of their business activities are sure to vex the SME owners. But nevertheless, reforms are being made to help more SMEs to drive the overall growth of the country and the future holds better prospects.

Addressing all the above, Vayana GSP helps businesses with GST filing and compliance, with utmost simplicity, and exceptional support.