Effects of GST on Small Enterprises

Effects of GST on Small Enterprises

The Small and Medium Enterprises (SMEs) have been considered as one of the primary drivers for the growth of the Indian economy for decades. Today, the small and medium enterprises have become millions worth and contributing a huge percentage of the industrial output and India’s export. Also, SMEs have emerged as one of the leading sectors for generating employment and contributing to the development in almost all sectors.

The Goods and Services Tax (GST) is one the biggest fiscal reform in the terms if taxation in India that will have an impact on all the big and small businesses. The GST (Goods and Service Tax) is an indirect taxation system that aims to combine the existing taxes under a single umbrella. The Goods and Service Tax is all set for the implementation from the 1st July 2017.

The GST is a single tax that will apply to everyone right from the manufacturer to the consumer. It will combine the different indirect taxes like the Sales tax, excise duty, central VAT, Vat, and other indirect taxes into one. GST will protect the customers from the double taxation and the cascading effect. However, the lower threshold limit will bring more SME’s into the Tax system.

Under the current taxation system, VAT is levied partially at the central and state level and at multiple points which create a cascading effect. Because of which the manufacturer has to reimburse huge tax aggregates that are not sustainable in the long run. Good and Service Tax (GST) is aimed to simplify such tax hurdles and will be ultimately borne by the consumer. Additionally, the GST bill will create equality across industries as all the business will be paying the same tax whether it is small or big. Uniform SGST and IGST rates will reduce the incentive for evasion by eliminating rate arbitrage between the neighboring States and that between intra-State and inter-State sales. The average tax burden on companies is likely to come down which is expected to reduce prices, and lower prices mean more consumption, which in turn means more production thereby helping in the growth of the industries.

The implementation of the GST will help control the malpractices leading to the tax evasions and also help in bringing more transparency.  GST compliance will bring up certain changes in the system, and it will be challenging for the SME’s initially to meet the compliance. They will have to update their systems and manage all the information and invoice details of the supplies accurately with the taxes to be paid. The SME’s falling under GST compliance will require enhancing their accounting capabilities by improving their IT Infrastructure.

However, the business and consumer are proactive on the GST, but they are not sure of the ways the new tax system will affect their business. It is imperative to know the elaborate and complicated aspects of the GST and the other associated tax modification in detail to understand the full consequence of the new tax reform.

The Benefit of the GST on the Small Enterprises

The implementation, of the GST, will be beneficial for the SMEs in many ways. Some of the benefits are discussed below-

  • Easy start and Run a Business

With the implementation of the GST, the businesses will not have to worry about keeping up with the VAT Compliance that varies from one state to the other. The different tax rules only add more complications to the taxation procedure as well as incur high procedural fees. The GST enable a centralized registration that will make it easier to carry out the business activities comparatively much easier as the SMEs will only have to pay only one tax.

  • Fewer Tax Compliances

The GST bill will bring all the different indirect taxes at one place which will eventually transparency to the taxation procedure and help make the tax collection process easier and less complicated than before.

  • The Central GST would replace –Central Excise Duty, Service Tax, Duties of Excise, Cesses and Surcharges and Customs Duty
  • State GST would replace –Central Sales Tax, State VAT, Purchase Tax, State Cesses and Surcharges, Luxury Tax on Advertisements, Gambling, Lottery, and Entertainment Tax.
  • Faster Transportation of Goods

Under the GST bill, there will be no entry tax charged. This will prove beneficial for the logistic sector as it will not only increase the pace of delivery and transport of the goods but also there will be no long wait hours at the interstate points and checkpoints. Consequently, it will help reduce the logistic cost for the manufacturers that produce goods in bulk.

  • Benefit to Start-ups

The start-ups are required to register for VAT if their turnover is more than Rs. 5 lakhs, and in some states, this amount is Rs. 10 lakhs. With the GST implementation, businesses with an annual turnover of Rs 10 lakhs will require registering for the good and service tax. In addition to this, the businesses with an annual turnover of Rs. 10 to 50 lakhs will be taxed at low rates.

  • Uniform Tax compliance

There will be uniform tax compliance across all states in India that will help reduce the tax burden and end the difference between the goods and services

The sectors that will get the most benefits:

Consumer Durables, Automobiles, Cement, Building Materials, Entertainment, consumer goods Metal, Fast Moving, and Logistics.

GST (Goods and Service Tax) is one of the major financial revolutions in the history of the Indian economy that is aimed to bring the unorganized sector in the purview and make the taxation system more transparent that will help to reduce the tax evasion. Across the country, there is mixed opinion on the GST tax reform, and in the initial phase of the GST, implementation will face certain hurdles. Without a doubt, there will be both pros and cons to be a part of every tax reform. However, to contribute to the growth of the economy, it is beneficial to adopt the change.

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