If there is anything that drives the growth of the Indian economy, it is the Small and Medium Enterprises (SMEs). The sector is responsible for 38% of India’s GDP. Therefore, it makes complete sense for start-ups to check on the implication of GST on the Small-Scale Industry (SSI). If you have landed on this blog post, you will learn about the various issues the industry faces due to GST.
Limitations the New GST Regime Could Pose from the Perspective of a Small Business
GST consultancy may have its fair share of upsides, such as centralized registration and uniform rules across all states, thereby simplifying the launch of new businesses, but it sure does have its downsides. Let us check them out here and examine how they are likely to have an impact on SMEs:
The GST turnover limit is quite low
The exemption limit under the GST regime has plunged to Rs. 20 lakhs. Only an SME can express how burdensome it is on their working capital.
High cost of compliance due to frequent return filing
If you compare VAT or excise returns to GST, you would be alarmed by the return filing count in the latter case. Presently, filing returns once in three months is sufficient for VAT or excise. However, returns from sales or purchases require filing thrice a month. The dates are the 10th, 15th, and 20th. Besides, filing annual returns is mandatory. In aggregate, a registered taxpayer must file at least 37 returns during a financial year. This necessitates deploying resources in excess and thereby cause the cost of compliance for SMEs to shoot up.
According to the new GST regime, small traders and retailers are liable for State-wise registration while sourcing supplies of goods and services from different States. Therefore, having multiple branches spread across various States is a huge drawback. Had there been a centralized registration under the GST regime, the hassles could have been avoided.
Tax liability on stock transfers
SMEs fall short of working capital under the new GST regime as their stock transfers are liable to tax. Besides, the high compliance feels like a burden to them. If you think from the perspective of an SME, only then can you realize the seriousness of the situation as they hardly have adequate capacities, manpower, or technology.
Tax on advance receipts
All this while, tax on advance receipt only existed in Service Tax. However, today, it applies to the cash outflow of businesses supplying goods too.
High compliance burden
Under the new GST regime, start-up and growing businesses must update accounting needs on a timely basis and maintain so state-wise. From GST computation to availing of credit, everything is expected to be nailed monthly. For SMEs, this could be a problematic area as their accounting taxation is unstable. Most of the time, it is the proprietor who acts as an accountant to manage accounting and book-keeping.
Likewise, there are many other limitations of GST, which can have negative implications on the SSI. Therefore, all start-ups must spare some time to understand its concept and importance and take care of its compliance measures. One thing is for certain owning and operating a small business is not for the faint-hearted. It takes persistence, courage, and patience for SMEs to survive.
But again, it would be wrong to highlight only its negativities as GST unifies the Indian economy by raising the competition among SMEs and leveling the playground between small and big players. Adhering to compliance measures can solve almost everything.