Positive Impact Of GST On SMEs Warrants More Attention

Keeping in mind the fact that Digital India has been a significant element of the Modi Sarkar’s agenda so far, it’s not surprising to see many of GST’s benefits for Small and Medium Enterprises be in the digital space


After the masterstroke that was last year’s Demonetization, the passing of the GST bill in April this year can be considered as being one of the biggest landmark achievements of the Modi Government so far. The Prime Minister and the Finance Minister have been working hard to ensure the smooth implementation of this landmark economic reform and in the two and a half months since its official implementation, we are already seeing many of GST’s economic benefits come to fruition. And while these benefits of GST have been seen across the board, Small and Medium Enterprises is one sector where its positive impact hasn’t been accorded the attention it warrants.

For decades, Small and Medium Enterprises have been looked upon as being the principal growth driver of the Indian economy. After all, millions of Small and Medium Enterprises are currently responsible for 50% of India’s industrial output and 42% of its total exports. They also happen to be the leading employment-generating sector in the country as well. And so it goes without saying that the benefits of implementing GST on SMEs will play a vital role in shaping India’s economy in the coming years. So let’s talk about these benefits, many of which aren’t being talked about in mainstream media.

Right off the bat, the implementation of GST has made it a lot easier for anyone to start their own business. Earlier when GST was not implemented, the Sales Tax department had made it necessary to undergo VAT registration for anyone wanting to start their own business. This made things even more complicated when one wanted to start a business with operations in multiple states as then the business in question had to follow all of the different tax rules imposed by different states.

Needless to say, all of this increased the cost of starting a business. Thanks to GST, however, the process of starting a business has become a lot less complicated and a lot more standardized. Additionally, online registration also makes the registration process a lot smoother and efficient than ever before, not to mention a lot less costly.

Another major benefit of GST for SMEs is the greater market expansion they’ll now be enjoying. When GST was not in play, SMEs would limit their market share to the specific states they were based in, as they didn’t want to bear the added financial toll of taxes on interstate sales. Now thanks to GST, tax credit will be transferred regardless of the location of the buyers and sellers, ensuring that SMEs are able to expand their market share to multiple states, which will then lead to increased sales and profits.

It’s also important to highlight that, now because of GST, the new basic tax exemption limit is Rs. 20 lakh, whereas earlier you had to pay a VAT registration fee even if your annual turnover was more than Rs. 5 lakhs. Another incredible benefit of GST is that an entry tax will no longer be levied on any goods that are manufactured in India. This significantly helps SMEs as delivery of goods at interstate points will now be expedited, thereby making it a lot less financially taxing. This will also end up significantly reducing the logistics cost for SMEs by as much as 20%.

Finally, perhaps one of the biggest benefits of GST for SMEs has to be the lack of ambiguity towards defining what constitutes goods and services. Under GST, there is no longer any difference between sales and services, thereby significantly simplifying the legality vis-à-vis packaged products, simplifying the taxation process and greatly reducing tax evasion.

Keeping in mind the fact that Digital India has been a significant element of the Modi Sarkar’s agenda so far, it’s not surprising to see many of GST’s benefits for Small and Medium Enterprises be in the digital space. And so thanks to GST, electronic compliance will now be adding some much-needed transparency to the taxation process. Additionally, electronic refund procedures will now fast track the taxation process and enhance liquidity for SMEs. Finally, all tax returns are required to be filed electronically, and any input tax credit and tax liability adjustments will happen automatically on the basis of these returns, as opposed to the more manual and complicated process that was in place before.

Apart from Digital India, another important campaign that the Modi Sarkar has been pushing for recently is ‘Make in India’. And as it happens, the passing of the GST bill will make it possible for SMEs to have the entire amount of input tax credit be availed in the year of the purchase itself, as opposed to the earlier system where only 50% of the input tax credit against purchase was available in the year of purchase, thereby contributing to ‘Make in India’ itself.

In closing, if there’s one thing that can be said with absolute certainty about the passing of the GST bill, it’s this – it has been an incredible boon for the Small and Medium Enterprises. And because of their importance in the Indian Economy, it can be said with certainty that GST is all set to be an incredible boon for India’s economic future as well.

Disclaimer: The views expressed in the article above are those of the authors’ and do not necessarily represent or reflect the views of this publishing house. Unless otherwise noted, the author is writing in his/her personal capacity. They are not intended and should not be thought to represent official ideas, attitudes, or policies of any agency or institution.