GST & its Influence on Small Enterprises

Micro, Small and medium enterprise has played a pivotal role in providing employment and growth to a developing nation like India. For many years, small businesses are contributing 42% of total export and 50% of the industrial output. For India, MSMEs have emerged as a ray of hope with development and growth in every sector. In 2017, the Government of India initiated GST to improve Indian Taxation system. It has greatly affected the MSMEs. Let’s see the impact of GST on medium and small businesses.

GST Recapitulation

Goods and Service Tax eliminates the dual tax system by combining the central and State taxes into a solitary tax, enabling a joint nationwide market. The implementation of GST enables the Government to get a better hold on tax evasion leading to an improved tax scheme and other benefits. 

Ease of Starting a Business

In the older times, when the new business owners had to set up a business across India, they had to register for VAT from the States Sales Tax department. Every state has its VAT charges and procedures for registration. It becomes extremely hard for small business owners operating in Pan-India to maintain and comply with VAT registration. 

With GST in the picture, small and medium business owners can register for GST that combines the central and state tax to enable owners to easily manage their taxation as the GST registration is applicable in Pan-India. It reduces the cost and effort required to manage VAT.

GST Effect on MSMEs 

It has been a roller coaster ride for a businessman in India to comprehend GST and its filing system. While many MSMEs have been able to file GST with ease, others are facing issues due to the lack of technical knowledge. 

The role that SMEs are playing in the growth of the nation has made people apprehend the impact that GST is having on small and micro-businesses. Let’s know them in detail. 

• Seamless Taxation with Invoice Plugin with WooCommerce

Goods and service tax has been successful in eliminating the cascading system of taxation by making the system more transparent for small and micro-businesses. GST has exponentially reduced tax liability for small businesses, enabling them to flourish more confidently in the world of the Big Bulls. Moreover, GST filling process in digital that has transformed the way people used to file tax – it has become a more efficient and time-saving process for all business owners. 

However, the point to be taken into account is that most of the small and micro business owners are not tech-savvy due to which they have a hard time filling GST timely. Businesses have been hiring people to simply file their taxes on time, which is costing them tons of hard-earned money. WooCommerce GST plugin has enabled people to get GST-added customized invoices online. It’s cost-efficient and easy to handle, particularly for a person who isn’t tech-savvy. 

• Improved Logistic Tax

Firms involved in inter-state business and transportation had to go through a lot of hassle at the inter-state checkpoints, where the trucks waited for hours and hours in long queues, resulting in loss of fuel and labor cost. GST, by combining the central and state tax, or IGST has allowed transportation to go smoothly between states. The elimination of checkpoints and border taxes has allowed businesses easy transportation. 

• Elimination of Distinction Between Goods and Service Tax

Before this, companies offering both products and services had to calculate their VAT individually. When GST was incorporated in the Taxation system, the government eliminated this distinction and merged both the taxes into one. This enables SMEs to take benefit of tax incentives while making payments for procurement of input including export, import, telephone services, and many more. 

• Monthly Basis Tax Filing

While GST has brought multiple perks to SMEs, it has its own cons which one shouldn’t miss. GST requires monthly book closure which is a time-consuming process for a person who isn’t tech-savvy. Besides, firms that are unable to pay their returns on time will not be able to claim refunds.  Their customers cannot claim the tax credit for the goods and services they purchase. This leaves the customers unsatisfied.

• Mandatory GST for e-commerce 

As per the rules under GST, e-commerce businesses are not exempted from GST irrespective of their annual turnover. In addition, e-commerce firms need to register for GST in states they supply goods and services. Neither are they eligible for threshold exemption nor the compliance scheme. 

Improved GST Scrutiny on Micro and Small Businesses

The government is taking hard steps to curb tax evasion and manage tax records well. According to the new guidelines for small businesses:-

• Businesses earning Rs. 5 Lakh per year or more have to pay at least 1% of their GST liability in cash.

• Businesses who have not cleared their prior tax dues or have failed to register for the GSTR-3B form will be restricted to fill outward supply chain detail in the GSTR-1 form. 

Conclusion

Undoubtedly, GST simplifies the taxation process and increases the competition in the Indian Market for SMEs. The crux of the discussion is to pay the taxes timely to eliminate the chances of acquiring the negative impact of the new regime to procure tax incentives on the regular basis. 

Try our GST plugin for WooCommerce platforms