The Impact of GST on Small Businesses

SMEs have been considered as the primary growth driver of the Indian economy for decades. Let’s examine what would be the impact of GST on Small & Medium Enterprises

Before starting any business, one should become well-versed with the relevant legislation and compliances around their area of undertaking. This also includes any taxes that their business may be liable to pay. The Goods and Services Tax, introduced in 2017, aims to help small businesses by getting rid of complex centre and state taxation systems and replacing them with a simple, unified one.

Positive Impact of GST:

1. Ease of starting a business

With a centralized system, GST has eased the process of starting a business and consequent expansion. With GST reducing the process of starting a business, there is a spike of SME loans in India, especially from NBFCs. Post receiving the GST registration would be easier to perform interstate business via e-commerce operators.

2. Low tax burden and easy tax filing process

Before GST, SMEs had to deal with multiple taxation systems. GST wiping out all cascading taxes, the tax burden has been reduced to over 60% of small traders and dealers. Higher exemption to new business by extending the limit up to 25 lakhs which will bring down the tax burden to newly established businesses. GST will make the process of paying taxes simpler by merging all taxes of different states.

3. Improved Logistics

 Under GST, there is no entry tax on goods sold in any part of India. This expedites the     movement of goods across the nation, hence improving the logistics. This reduces 20% of logistical costs.According to CRISIL, GST is reducing the time-consuming process and it will benefit 20% in logistical costs for companies who are making in bulk. The reduction in logistic costs has also increased the faster delivery.

4. No distinction between goods and services

GST has eased by eliminating the distinction between the two. This is one of the significant benefits of this new tax regime as this will simplify proceedings related to packaged products.This in turn reduces tax evasions. SMEs calculate tax on final products which results in straightforward invoicing.

Challenges of GST:

1. Technological difficulties

Not all Indian SMEs are adept at handling the GST mechanism online. They are not aware of the practical details of GST filing online & have to outsource it.This in turn adds to their registration cost. Lack of technological advancements & education of SMEs is bound to create bottlenecks in managing their registered business online or on some government portal.

2. Working capital

This is another challenge SMEs are facing with GST implementation. While exporters enjoy upfront exemptions on exported goods, this is not available in the current administration. Tax refund delays have blocked funds affecting competitiveness. Blockage of working capital can create a liquidity crunch. To overcome this, they need to apply for business loans to ensure their running costs are not impacted.

3. Tax Compliances

The registration on multi-stages can be an issue if the business is doing the trade with multiple states because now it is mandatory to register with each state you are doing business with. The monthly return filing procedure can create problems for businesses as they have to comply with it else they will be burdened with Rs. 100 per day penalty which is not favorable even for their compliance rating on the portal

4. Tax filing

As there are many returns to be furnished in a year, to cope-up with the system they have to hire an accountant or ask a third party to do the return filing work. So, the burden of return filing can increase the cost for businesses. For e-commerce operators, it became more complicated because they don’t have any threshold limit to be exempt from the law and they have to register and track the supply of each goods. As SMEs have to pay tax first then they will be getting the returns; they have to defuse additional funds in advance till they get the returns. The refunds totally depend on successful export so SMEs have now more burden to depend on the supply chain for input tax credits and this is creating massive interdependence between SMEs and the supply chain

For SME, there are certainly some immediate challenges. These small businesses will have to put up with greater compliance requirements and also cede a level playing field to larger players in the organized segment. At the same time, they get the benefits of input tax credit (ITC) as also a much larger market to expand their footprint. On a net basis, the small business should stand to gain from GST!

Documents Required for GST Registration for Small Businesses

Here’s a list of documents required:-

  • Passport sized photographs of the owners
  • PAN card of the company
  • Identity proofs like Aadhaar cards, passport or driver’s licence
  • Certificate of association for LLPs, OPCs and private limited companies
  • Bank details through bank statements, passbook or cancelled cheques
  • Partnership deed in case of partnership firms

GST Registration Process for Small Businesses

The process of GST registration for small business. Follow these steps for getting a GST number for small business –

  • Visit the GST website and select ‘Services’, go to ‘Registration’ and click on ‘New Registration’.
  • A form will appear. Enter all the relevant details and select ‘Proceed’.
  • OTPs will be sent on the registered email ID and phone number. Enter the same.
  • Note down the 15-digit temporary reference number (TRN) sent to you for future assistance during the second part of registration
  • Visit the GST portal again, under ‘New Registration’, select the TRN option and enter your TRN number.
  • Key in the captcha code and select ‘Proceed’
  • Enter the OTP received on your registered mobile number and email ID.
  • Click on ‘Proceed’ to see the status of your application and make edits.

The introduction of GST has revolutionized small business in a number of ways. By eliminating existing cumbersome taxation policies and ushering in a unified regime, businesses have been able to simplify their workflows, boost their credibility and gain better access to loans. If you haven’t already, get your GST registration for small business today!