Are GST Gains a Really Big Win for Small Business Entrepreneurs in India?

May 23, 2024
Updated on

GST gains or not is a big question for small businesses, and how the new tax regime is impacting MSMEs is raising some concern. One of the protruding rewards can be the tax impartiality that small-scale entrepreneurs enjoy. However, one of the major concerns that have caused them to be wary of the GST bill is the reduction in duty. A manufacturer with an annual income of less than Rs. 1.5crore pays no duty under the current excise tax system. However, in the event of a pole GST execution, the exemption boundary will reduce significantly. 

The introduction of the Goods and Services Tax (GST), a single-window taxation system, was intended to help small businesses that are frequently burdened by taxes and their compliance. With more than 51 million small businesses in India, they account for 50% of industrial output and 42% of export revenues. In the post-GST era and knowledge of its impact, small business, the top employment-generating sector other than IT, holds the key.

Some of the aspects of GST gains where small businesses can benefit are outlined below:

Improvements in Logistical Applications and Speedier Product Delivery

The GST bill assures that no entry tax is required when a firm or organisation manufactures or sells a product in India. The most significant issue for small businesses is bureaucratic intricacy, which occurs when socioeconomic and political barriers obstruct and waste real time, money, and human resources.

Owing to GST, small business owners benefit from a centralised registration. This aids small businesses not only in terms of audience diversification, but also in terms of market competition. Convergence of commodities and services would be another major benefit. Small businesses will have a clear picture of how taxation will affect them now that the distinction between goods and services has been removed.

An Encouragement for Exporters

Export-oriented businesses will benefit significantly from GST gains. When products are exported, IGST paid on them is automatically returned, similar to how drawback claims are handled. Service exporters will benefit as well, because their supply (both inbound and outbound) will be zero-rated. Exporters have the option of exporting without paying tax and receiving an Input Tax Credit (ITC) refund, or exporting after paying Integrated Tax and receiving a refund. The IGST paid during export will be returned automatically, with no need for the exporter to file a refund claim.

Improving Business Liquidity and Working Capital Flows

Today’s entrepreneurs face significant financing constraints. Working capital is frequently stifled by tax and refund claims. The ITC process under GST is designed to prevent this from happening. Furthermore, under GST, the refund processes are totally computerised and automated, with fixed timetables and online credit of refunds in the claimant’s bank account. These procedures will greatly increase firm cash flow and prevent working capital from becoming encumbered with Tax Authorities.

Competitive GST Pricing

GST gains assist businesses in ensuring the best prices for their products and services. Prices will no longer include taxes, putting enterprises in a much better position to provide competitive prices and attract clients.

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Compliance Rating System

Periodical compliances such as monthly returns, reconciliation of TCS (tax collected at source) amounts, and so on are weighed on MSMEs operating through e-commerce operators. Furthermore, because MSMEs may be performing compliances manually without the assistance of technology, it presents difficulties in performing reconciliations, keeping track of TCS collected and paid, credit reconciliations, and so on.

Someone who has only seen/accessed the internet through a mobile phone may struggle to understand the processes and website complexity. Unfortunately, the GST process, including navigating the website and completing returns on a regular basis, is highly time-consuming, which discourages small and medium-sized sellers from starting or expanding their operations through e-commerce platforms.

As a result, it would be prudent for the government to streamline the entire GST process and website in the interest of all suppliers, both online and offline. The lengthy and convoluted procedure becomes stressful, and instead of enabling and empowering enterprises, it functions as a deterrent and hindrance to their inception and growth.

Final Words

Because the GST regime does not distinguish between items produced by small businesses and goods produced by multinational corporations, small businesses will be forced to compete with huge corporations. The cost of products will be greater for businesses that deal with direct supply to end customers. Another major concern is the lowering threshold,      the exemption ceiling in GST has been drastically reduced, giving large businesses a significant advantage over small businesses.

However, the exclusion of certain products from GST harms small businesses in the fertiliser business and others. There hasn’t been a clear debate on the 1% origin tax, as well as the increased cash flow issues associated with GST payable on stock transfers. Without a doubt, GST gains will have a transformative impact on India’s indirect tax administration, affecting all types of businesses.

However, regular GST fillings and compliance can be an easier way for MSMEs to procure additional financing through business loans. Availing GST loans in India are gaining significant ground and many small business owners are using this to procure short-term loans or working capital loans. Kinara Capital offers a variety of business loans to      MSMEs in a simple and secure manner. Small business owners can access fast and flexible loans ranging from 1 lakh to 30 lakhs digitally through the myKinara app or visit the nearest branch, both of which offer services in preferred vernacular language.

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