Small businesses are an important growth engine for the Indian economy. Across India, there are around 5 crore small and medium-sized businesses providing employment to 11 crore people contributing a third to India’s GDP (according to the 2016-17 annual report of the Ministry of Small and Medium Enterprises). Also, many small businesses are concerned about the sweeping nature of reforms that the ambitious tax regime seeks to bring in.
Small and Medium Enterprises make a huge chunk of India’s GDP and provide employment to over 10 Crore people. And rightly so, the impact of GST on small businesses has been on every growing entrepreneur’s mind. And we deem it necessary to educate you on it. Hence, here is our pocket analysis on it.
The Good
- Any business not crossing a turnover of 20 Lakh need not register for GST.(Exceptions: (a) For North Indian states, the cap is 10 Lakh, and (b) Businesses engaging in supply through inter-state/e-commerce mediums need to register)
- To relieve small businesses from the intricacies of the GST, the composition scheme was launched. It allows small businesses having a turnover less than Rs.75 Lakh to pay a small percentage of their turnover as tax, to replace GST.
- GST gives an impetus to the growth of small businesses as the multiple central taxes have been now united under GST. This eases tax transactions and hence, helps ease of doing business.
- GST for both goods and services remains same, which eases compliance. This specifically benefits restaurants and hotels, which comprise both services and sales tax.
- Each stage of a transaction involves GST payment, and taxes involved in interstate transactions are open to be claimed. This benefits small businesses in cost-cutting.
- Inter-state transactions will be easy now because GST appropriates octroi and other similar taxes.
The Not-so-Good
- Although businesses generating less than Rs. 20 Lakhs need not register for GST, they will miss out on the benefits registering for it gives them. For example, under the GST regime, one can claim input tax credit. If a small business is unregistered, the registered businesses buying services and goods from unregistered ones will have to pay tax on the latter’s behalf. This encourages buyers to prefer registered businesses, which beats the purpose of exemption for small businesses in the first place.
- Any dealer registered for the composition scheme cannot collect tax from customers. Also, he/she can’t claim input tax credit on the tax paid on business inputs.
- Earlier, manufacturers with a turnover below Rs.1.5 Cr didn’t need to pay any excise duty. However, now the cap goes as low as Rs.20 Lakhs (10 Lakhs for the North Indian States.
- GST returns can only be filed online, which sounds haunting for many old yet small businesses. India is yet to get completely digitized. And most small entrepreneurs like shopkeepers still carry out their book keeping through registers.
- GST refunds can be claimed on the basis of merit. The taxpayers will be given a GST compliance score to assess their credibility. This affects small business that largely runs on credit payments and faces a frequent cash crunch. Their less-than-ideal ratings will also affect their brand image as all of this information will be public.
GST is indeed complex. It brings its own set of perils and conundrums. But it is also a move to eventually bring consummate transparency in the taxation system of the country, largely boosting ease of doing business and economic growth.
