gst impact on small medium businesses
TRANSCRIPT
IMPACT OF GST ON SMALL & MEDIUM BUSINESSES
2 May 2023 1
2 May 2023 2
Size of Small Businesses in India
The MSME (medium, small and micro enterprise) sector which contributes
to approx. 40% of Indian exports is about to go bigger with the recent spate
of reforms. Today, through various government and RBI led initiatives the
financing and ease of doing business for SMEs have progressed. A recent
Credit Suisse report states that the SME Loan Market is estimated to grow
$3,020 billion over the next few years. This brings good tidings to the
existing and seedling SMEs in India. RBI reforms like guidelines on purchase
and sale of priority sector lending certificates (PSLC) helps promote efficient
lending practices for SME sector.
Government plan of rating MSMEs on 50 parameters will enable the sector
to improve quality of manufacturing and gain a foothold in the international
market. Digitization move by Government of India, will make it easy for
small business to look for more options of funding. All these reforms paired
with the government pushing for implementation of GST in 2017, ensures a
strong backing to the SMEs in India.
2 May 2023 3
What is GST?Goods & Services Tax (GST) is an new indirect tax and is expected to remove
most of the existing indirect taxes such as Excise, VAT , Service Tax, Customs
(except few duties), Entry Tax etc. GST is expected to be biggest tax reform
since independence of India.
GST is levied on supply of goods and services, it will be applicable on
transaction value which includes packaging, commission and other
expenses incurred during sales. It will bring uniform taxation across country
and will allow full tax credit from inputs and capital goods on procurement
which can later be set off against GST output liability. The reform gives
equal footing to the big enterprises and SME alike and removes the tax
differentiation areas such as stock transfer.
On the other hand, under the current system, Indirect taxes are levied
partially at state and central level and at multiple points which creates a
cascading effect (tax on tax). Due to which the end product becomes costlier
and manufacturer has to bear the effect of taxation in order to sustain for
long run. GST is aimed to simplify such tax hurdles and will be ultimately
borne by the customer.
2 May 2023 4
Features of GST
One country one law and One compliance
Tax on Supply of goods & services
Lower cost by removal of cascading effect of taxation.
Smooth credit allow-ability by transparent credit rules.
Administration by clearly defined authority, central OR state
2 May 2023 5
Impact of GST on Small Businesses
Opportunity Impact
MARKET EXPANSIONSMEs limit their customers within state as they will bear the ultimate burden of tax on interstate sales, reducing their customer base. With implementation of GST, this will be nullified as tax credit will transfer irrespective of location of buyer and seller. This allows SME segment to expand their reach across borders.
ADVANTAGE FOR SERVICE PROVIDERSGST will not distinguish between goods and services. This is good news for the SMEs who deal with sales and services model of business, for them the taxation is simplified and will be calculated on total, with better credit allow-ability
REMOVAL OF MULTIPLE TAXATIONGST will allow edibility in transfer of goods across states and reduce the cost of doing business, as the reform will cut down multiple taxes imposed by state and central government.
REDUCED LOGISTICS COSTAs GST is rate neutral it will eliminate time consuming entry tax procedures, toll check posts & encourage supply of goods across borders. Logistical cost for manufacturers of bulk good will be reduced by around 2%. Such costs can be crucial for the survival of SMEs
The Good
GST boosts competitiveness of SMEs. They will benefit as follows
2 May 2023 6
Impact of GST on Small Businesses
Opportunity Impact
LOWER THRESHHOLD LIMITSIn the current central excise law threshold for registration is Rs.1.5 crore, threshold in GST is 20 lakh. This reduction will significantly impact the small companies, most MSMEs are now exempted and will have to pay a chunk of their capital towards tax in future.
CASH FLOW IMPACTTaxation of stock transfer & coverage of MSME’s under GST will primarily impact the working capital requirements. The quantum of impact will vary depending on stock turnaround time at warehouse, credit cycle to customer, quantum of stock transfer, etc. Companies will be required infuse the working capital since they may be required to discharge the GST liability pending realization of invoice.
HIGHER TAX RATES FOR SERVICE PROVIDERSPresently Service Tax rate is 15% under GST rate will be 18%. The scenario in the service sector will further be impacted as the concept of Centralized Registration will not work and each unit in different states will have to take separate registration.
The Bad
GST boosts competitiveness of SMEs. They will benefit as follows
2 May 2023 7
About the Author
Gaurav, a Chartered Accountant with 12 years of experience in the field of Transformation & Process Consulting, Strategic Advisory & Technology Implementation.
Being focused on Process Consulting, SAP Implementation, Program Management & Technology Selection. He was responsible for execution and management of some industry giants in India, Europe, UK, USA and Australia
A strong believer for delivering Process Consulting, Technology Advisory & Services, Program Management & GST Services.
Gaurav ShuklaPartner Outcome Solutions & Services LLP.
+91-9873007076
Write to us on [email protected] for an Awareness Session at No Cost