GST: A mix bag of opportunities & challenges for SMEs

Decrease in duty limits is one of the primary concerns which has led SMEs to be cautious of GST

Last Updated : Apr 07 2017 | 3:35 PM IST

The Goods and Service Tax (GST) is a destination-based tax applicable at multiple stages of production and rendering of goods & services and their distribution. Subsuming various indirect taxes such as entertainment tax, state and local tax, surcharge, excise duty, octroi, and others, the GST will be levied on the value of the transaction including commission, packaging and other costs incurred during sales.

As per the experts in the industry, start-ups and SMEs will be affected by the implementation of the GST and its impact will be favourable in ways more than one.

GST will benefit SMEs in the following ways:

Ease of starting a business: A business operating in different states of the country needs value added tax registration under the state laws. Different indirect tax rules in various states only add to the complications and high fees of procedural requirements. Under GST, a centralised registration will make doing business easier, simpler and the consequent expansion will be an advantage for SMEs.
Reduction of the tax burden on new business: As per the present indirect tax structure, businesses with a turnover of over 5 lakh rupees (10 lakh in some states) need to pay a VAT registration fee. The central government has increased the basic exemption limit to 20 lakhs, which is a 75 percent relaxation in limit for small traders and manufacturers.
Advanced and improved logistics with speedy delivery of services: Under the Goods and Services Tax bill, there will be no entry tax anymore. Consequently, the movement of goods at check posts and interstate borders will be expedited. As per an estimation by the CRISIL, the cost of logistics for the manufacturers of bulk goods will significantly reduce by 20 percent. This will boost commerce all across the country.
Eliminating the vague distinction between goods and the services: GST will make sure that there is no existence of ambiguity between goods and services. This will ease and simplify several legal proceedings in relation to the packaged products. Reducing the distinction between the service and the material component, will reduce opportunities for evasion of tax.
Boosting the manufacturing sector: With the implementation of GST, it is expected that the burden of tax will reduce both for the manufacturer and the end user, as the manufacturer will get the benefit of input tax credits and the end user will have to pay only the tax charged by the last dealer or the retailer in the supply chain. Subsequently, the competitiveness and the demand for the ‘Made in India’ products would increase immensely.

Archit Gupta, founder & CEO, ClearTax.com

What SMEs might be concerned about?

A large portion of small and medium enterprises (SMEs) are of the view that the GST is not entirely good for them and their worries might not be totally void. Decrease in duty limits is one of the primary concerns which have led them to be cautious of the Goods and Services Tax bill. Under the present excise tax regime, no duty is paid by a manufacturer with a gross turnover of less than Rs 1.50 crores. However, after GST implementation, this exemption limit would get considerably lowered to Rs 20 lakhs. Consequently, a large number of SMEs and start-ups would come under the purview of the GST tax. Moreover, there are flipsides to the suggested tax neutrality.

The final word

It is too early to say for sure what the final outcome of the GST regime will be for small and medium businesses. However, the signs are positive and hopefully the benefits from the change in tax laws will offset the drawbacks to create a healthy environment for economic growth.

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Archit Gupta is the founder & CEO of ClearTax.com