The government believed that a streamlined tax system and a single market would increase operational effectiveness, particularly for MSMEs
According to the Ministry of Micro, Small, and Medium Enterprises, there were more than 7.9 million MSMEs in India as of March 27, 2022. These enterprises account for more than 29 per cent of the GDP and 50 per cent of all exports from India. Additionally, MSMEs are responsible for 30 per cent of the country’s manufacturing production. In the 2022 Statistareport, almost 110 million Indians worked in MSMEs in FY16. Urban areas have much higher MSME employment than rural ones. Micro businesses, of all firm sizes, represented the greatest proportion of employment in the country during the studied period.
MSMEs form the backbone of India. To bring more ease to this crucial sector, the Indian government introduced the Goods and Services Tax (GST) Act on March 29, 2017, which became effective on July 1st of that same year. The government believed that a streamlined tax system and a single market would increase operational effectiveness, particularly for MSMEs.
The Benefits of GST
The following are the benefits and future objectives of the GST Act:
- The number of indirect taxes has decreased.
- Since there are fewer GST compliances, filing your GST return won’t take up a lot of your time.
- Complete GST registration can be done online.
- After obtaining GST registration, it is simple to conduct interstate business through e-commerce operators.
- Through online procedures, the GST has regulated unorganised business sectors.
- Once a GSTIN is allotted, it can be used for all GST facets.
- GST provides a composition plan to pay taxes at a set rate while lowering the amount owed in taxes and tax rates.
- Having fulfilled the compliance, you can easily claim an input tax credit.
- Under GST registration, tax avoidance is easy to spot.
- The endeavour is to put ever more companies under the GST.
- The consumption of goods and services will be encouraged.
- GST sets reasonable prices for a product or service.
However, a study done by the Reserve Bank of India (RBI) on GST’s one-year completion shows that the new tax act has unquestionably raised operating expenses for MSMEs. These enterprises find it challenging to separately invest in computer infrastructure and GST-related services from CPAs and tax experts. Despite the fact that GST offers a lot of benefits, MSMEs seem to be taking time to become accustomed to the new tax structure.
As the GST Turns 5, How Are Businesses Faring?
Earlier this year, in 2022, Local Circles reached out to Indian business people, collecting their feedback on the new role of GST in their professional lives. The findings of the survey include:
- Compared to pre-GST business taxation, 37% of enterprises are spending more time on GST compliance.
- 50 per cent of enterprises claim that their monthly accounting costs have risen since the introduction of GST.
- 75 per cent of enterprises find the matching of invoices for outputs and inputs to be the primary problem with GST.
- Only 45 per cent of enterprises are delighted with 5 years of GST, whereas 24 per cent express discontent.
Connection troubles, logging-in delays, and submitting the information are some of the other major issues businesses are facing while on the GSTN website.
Concerns and Recommendations with Respect to GST
- Over-MB documents cannot be uploaded to the portal; this limitation has to be extended.
- E-invoicing is valid for 24 hours only; either the time restriction should be extended or e-invoices should automatically be emailed to enterprises.
- From October 1, 2022, e-invoicing is applicable if the turnover exceeds Rs 10 cr; it should not be so for MSMEs.
- GST registration is done online, but physical verification is carried out by state GST departments. As a result, MSMEs must interact with the GST department staff, which might give way for corruption.
- It is challenging to determine if a new registration falls under state or central jurisdiction. Regarding their state jurisdiction office details, new registrants or taxpayers often face a lot of misunderstanding.
- There are numerous legal and factual disputes; thus, the Income Tax Department needs a separate tribunal.
- Petroleum products are still exempt from GST.
How the Indian Government Is Relaxing GST for MSMEs
The Government of India has been taking numerous actions to create a more favourable environment for the growth of MSMEs because it is aware of the enormous contribution of the sector. It has relaxed various MSME-related rules as part of the GST regime. For example, the initial exemption level for commodities, which was Rs. 20 lakhs, has been raised to Rs. 40 lakhs. The annual threshold for the Composition Program was raised to Rs. 50 lakhs for services and Rs. 1.5 crore for commodities. Those dealing in composition are now permitted to offer services.
GST intends to broaden the base of taxpayers, mostly MSMEs, and it might place a burden on them in terms of compliance and the related expenditures. However, in the course of time, GST will make these MSMEs more competitive by creating a level playing field between them and large corporations. Additionally, these Indian MSMEs would be able to compete with overseas rivals from low-cost manufacturing hubs like Bangladesh, China, and the Philippines.
Former Chairman of BSE, Founder & Managing Partner of Ravi Rajan & Co
Section 276 of Income Tax Act Made Compoundable