GST stands for Goods and Services Tax. SMEs or Small and Medium Enterprises seem to be confused and unable to decide whether GST is a boon or a bane to them. GST holds high the slogan of “One Nation, One Tax” and thus brings a whole gamut of taxes like CTA, Service tax, CST etc. into one unified form called the GST. GST claims to ease out the tax payment process by reducing the complexities involved with multiple tax structure thus facilitate ease of doing business. The big players shall surely be affected by this new scheme, however, it is the SME’s which feel the heat more than anyone else with implementation of the GST bill. Well, it’s a beneficial move for them and lauded by those who have understood its application, some people are still not convinced by its introduction to the Indian tax system.
SME’s are the small entrants into the market that are still budding, blooming and aspiring to build a wide customer base. They are still striving to get higher revenues and grow into stable and big size players. For such new entrants or existing small players, introduction of GST is a matter of big concern, primarily because they do not fully understand its concept and application.
SME’s are finding it as a threat to their existence and considering it as a big hurdle to their growth while in reality it aims to helm them grow. Since GST is centralized, all you have to do is register once and procure a GSTIN. This can be used to pay GST for all the states involved in your sales process and you have standardized rules to follow. In spite of this, the SME’s are finding it troublesome as they are generally not so tech savvy and unable to do online stuff easily. They find it difficult to do these online procedures since they are more equipped to handle the traditional, manual processes.
Those SME’s which used to hide their sales and pay taxes as per the on paper sales which was a false figure as compared to the actual are very anxious with introduction of GST as this would bring complete transparency in the tax payment system and thus reduce their illegal earnings. Now all big and small enterprises will have to follow same rules for tax payment and thus the gaps between the two would surely be reduced rather nullified.
The tax department shall be easily able to view your sales and purchases history thus ascertain your earnings thereby making and therefore levying the right amount of taxes on the you. There will be mentions of GSTIN of your supplier at all points of the trade cycle thus, your customer will mention you in his purchases and this will be a trickledown effect, hence leaving no scope of escape for any player at all.
Now the CST or Current Sales Tax is replaced with IGST which comprises of SGST and CGST which shall be collected by the Central Government. This would be a relief for the transportation sector as there would be no entry checkpoint delays and thus reduced costs of transit, but again the SME’s are anxious as if the real figures of sales reach the tax department, many of them shall come out of this shell and label of SME’s owing to the difference between actual and on paper turnover figures. This would mean that they will not be able to enjoy the increased threshold limits specially planned for small and medium size businesses.
We have explained these threshold criteria briefly below:
Increased Threshold Limits: Under VAT regime, businesses with a turnover of 5-10 lakhs also had to register and pay taxes. Under GST, the threshold for small businesses have been increased, hence, a business with a turnover less than 20lakh need not register and pay the taxes. The ones with a turnover between 20-50 lakhs shall pay a lower GST rate, thus making it easier for new entrants to establish themselves in the market.
Here’s a list of some forecasted and some witnessed problems which might actually affect the SME’s :
1. Multiple Registrations Needed: Under this system, any business operating in several states will have to register online for GST in every state. Since all of it has to be done online, small businesses might not be very comfortable with this.
2. Monthly Returns: Under GST books have to be closed on a monthly basis, which is a very cumbersome task. There will be around 36 returns in a fiscal year which is a very big number and would mean a lot of wastage of time in just filing taxes while the same time could be used for a more productive task. You cannot claim refunds until you have filed the returns regularly and any miss would cost you 100/day and reduce your Compliance Rating too.
3. Increased Tax Compliance Costs: Since GST would require a consistent filing up of returns, it demands for a regular accountant with technical expertise. One has to file 3 returns in a month and maintain separate books for each state involved in the sales process. Thus, it is indispensable to hire the services of an accountant or a firm with expertise in this domain. This would lead to increased tax compliance costs, which are a cause of concern for blooming small and medium enterprises still trying to establish a strong hold in the markets.
4. Mandatory registration for e-commerce firms: Irrespective of their annual turnovers, all e-commerce players, whether suppliers or operators will have to register for GST. These firms are not eligible for any threshold exemptions, or for the Composition Scheme. These firms shall have to register for GST in all the states where they supply their goods.
5. GST Compliance Rating: According to the GST law, the refund claims shall be paid on merit basis. If you have a 100% GST Compliance Rating, you shall get your refund claims reimbursed immediately. Thus SME’s with lower rating can be struck up with a part of their working capital pending for refund with the authorities. To avoid losing on the GST Compliance Rating, they will have to put a dedicated resource to meet the GST return deadlines and keep the books updated, which will simply add to the operational cost of the SME’s.
6. Lower exemption for manufacturing units: Under VAT, manufacturing units with turnover of less than 1.5 crore didn’t have to pay any duty, but now with GST, this threshold shall be drastically reduced to 25 lakhs only thus bringing many SME’s involved in manufacturing under the tax net.
While the SME’s continue to treat GST as a big threat to their existence and smooth functioning, in reality it is meant to help small businesses bloom to their fullest possible capacity; provided you are transparent in your operations and not fooling around with your false portrayal of small sales and minimal turnovers. For those who are involved in forgery and breaking the tax rules, GST is surely a hard hit. Thus, the SME’s are very apprehensive of the proposed benefits of the new wave of GST but gradually they will have to get used to it.