How will GST affect small and medium enterprises in India?

Since the time GST has been introduced, there have been a lot of speculations going around pertaining to the various ways in which it will impact the small and medium businesses of the country. India is a country which is growing by leaps and bounds. Every industry is booming at the moment and the government is taking the required steps in order to create a favorable environment so that these businesses could flourish. Amidst this prosperous phase, when the industries are thriving, people are afraid that the upcoming tax reform might end up decelerating the growth of the economy.

There is no denial to the fact that in the early phases, businesses operating on a smaller scale can face difficulties in complying with the new tax reform. However, in the longer run, both the businesses and the consumers, will be benefitting immensely out of this. The council has decided on certain GST exemption for small business which will assist them in adapting to the new tax regime without losing their profitability. Certainly, GST is being customized in a manner that it befits the small and medium enterprises perfectly.

The regime will bring a new dawn for this sector as it will be impacting it favorably in multiple ways.

  • Ease in the commencement of business:
    Undoubtedly, GST rules and regulations will benefit the small sector immensely as these guidelines will be making it easier to start a new business. In the existing taxation structure, states and the center are levying different taxes on each transaction. As most of the businesses operate in multiple states, it ends up increasing their tax burden. However, this problem would be entirely eradicated with the new tax regime. GST will be fostering uniformity within the system as it would be bringing in the structure of ‘One Tax. One Nation.’ As the businesses won’t have to comply with a thousand different rules of each state, this will give immense scope to the upcoming small scale business to operate across multiple states.
  • Business expansion:
    Irrespective of the size of one’s business, every organization wants to expand its operations. In the current scenario, as businesses have to comply with multiple taxes across the state so they try to restrict their functions within the physical boundaries of a particular state. This kind of constraint impacts the overall growth of the company negatively as they are not able to serve clients beyond that particular location only. Thanks to the multiple GST exemption for small business, the government is encouraging businesses to expand their operations across borders.
  • Higher exemptions for new businesses:
    The new tax regime is certainly bringing a great news for the upcoming small scale businesses. If we talk about the current scenario, then businesses who are exceeding the turnover of INR 5 lakhs have to get registered and pay VAT. However, the limit has been revised and GST exemption for small business has been increased to INR 10 lakhs. In addition to this, any business whose annual turnover falls within the bracket of INR 10-50 lakhs will have to pay a tax lower than the designated rate.
  • Efficient logistics and quicker delivery:
    GST is bound to eradicate the lengthy and time to consume inter-state transactions which include cross-border tax procedures and toll check posts. GST will end up reducing these costs by 20% and this can be extremely beneficial for the SMEs. As no entry tax would be charged, this will end up smoothening the logistics while making the delivery faster.

Challenge for small scale businesses:
Undoubtedly, GST is going to benefit the SMEs but there are certain worries which are concerning them. Under the existing taxation system, any business having a turnover of less than INR 1.50 Cr won’t have to pay any duty. However, under the new tax regime, this limit has been substantially reduced to INR 20 lakhs. Due to this, a large number of small-scale businesses and start-ups will come under the purview of GST. In addition to this, GST will not be levied on alcohol and petroleum which will end up widening the gaps between these commodities in comparison to others. The other side can’t be fully ignored that GST rules and regulations will help in preventing any kind of tax evasion and will ensure that each and every business falls under a uniform taxation system.