GST: Simplification Needed as SMEs Feel the Heat

Gunja Kapoor 10th October 2017

It is no secret that in the pre-Goods and Services Tax (GST) era, the Small and Medium Enterprise (SME) sector in particular had taken refuge in a multitude of practices to minimise tax outflow.

SMEs understated their profits or operated in a “one business-multiple firm” model to ensure the firm does not breach the tax threshold. The SMEs were known for indulging in cash transactions to contain the turnover below Rs 1.5 crore and save excise duty. Moreover, the sector has justified these practices as its only resort to operate at sustainable margins and remain competitive.

GST: ‘Business par vaar’

However, with the advent of GST, the SMEs are now forced to operate in a certain manner, which the sector fears will eventually impact its business sustainability and growth.

The SMEs have gone on record to call GST “Business par vaar”, as they go on to explain that GST compliance will be over and above the broader regulatory framework, which includes labour and pollution control among other operational checks.

Moreover, the sector faces lack of clarity related to Input Tax Credit and transfer of liability if a particular supplier fails to comply with GST norms. The SME players also fear liquidity crunch, as GST requires to maintain a buffer of funds in the form of electronic credit ledger with the tax department.

Also Read: 100 Days of GST: Are Small, Traditional Businesses Better Off?

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Note: Views expressed in this blog are those of the author.