The Goods and Service Tax, or GST, as it is popularly known was introduced to revolutionize the taxation system in India. Brought into force on 1st July 2017, it promised to deliver some much-needed change to the entire country. GST’s aim was simple – collect indirect taxes and encourage transparency in the process. Earlier, the taxation system was one that confounded even the tax employees. There were way too many loopholes and businesses somehow found ways to evade taxes. Add to that tons of paperwork, and it was simply a big mess. GST’s goal was to make taxes easier for businesses and take the complication out of the equation. But has it been able to reach the goal?
The SMEs, or small and medium enterprises in India, are the backbone of its economy. They account for over 40% of manufacturing output and employ over 40% of the Indian workforce. You can call Indian SMEs the backbone of Indian economy. That is why it was interesting to look at how the GST was a game-changer for SMEs. While initially there was much fuss about GST because it was something new and people are often afraid of change, eventually it became something that the SMEs embraced. Most businesses had to get new GST registration and get used to the way taxes worked due to changes. But the impact has been positive overall when you look at the whole picture.
GST made it easier for startups to launch in India. Earlier, if a business needed to be launched then it had to comply with state laws. Each state had a different set of laws that needed compliance and the launch was delayed since there was a delay. With GST, centralization of processes happened. This made everything come together in a cohesive manner such as new GST registration, refunds, etc. It has become simpler to start a business or expand one that is already operating. The startup costs have been driven down due to the unified taxing system. This, in turn, has enabled business owners to spend time growing their business instead of worrying about taxes like earlier.
Registration for new businesses was a hassle no business owner was a fan of earlier because many registrations had to be done separately for different taxes. With GST, new GST registration for new businesses is much faster and efficient. Human intervention has decreased and everything related to compliance and GST registration process has been transferred online. This includes GST verification, GST return, and GST registration status among others. This easy registration procedure has enabled business owners to focus on their business without worrying about dealing with officers of different departments. Registering in different states is similar and quick too.
Businesses who made over Rs. 5 lakhs had to pay taxes before GST was introduced. And it wasn’t just one tax they had to deal with. There were all types of different taxes that even small businesses were not spared from if they had a turnover that exceeded Rs. 5 lakhs. Moreover, there was a tax cascading effect because of a range of taxes that simply added to the cost. This made it an inefficient tax system that made it difficult for small business owners. GST made things simple by raising the exemption limit to Rs. 20 lakhs for businesses which gave the much-needed boost to small businesses. This exemption limit is Rs. 10 lakhs for North-Eastern states of India.
But this does not mean that registration of GST was not needed. If businesses owners were doing businesses in more than one state, then the business had to have a new GST registration. The turnover had nothing to do with the registration because it was mandatory for goods supply in more than one state. The exemption limit was for manufacturing and not for the services. This gave a boost for small traders and small businesses. The Composite Scheme is another beneficial scheme that is of importance for small businesses that are operating in one state. There is a flat tax range for small businesses under this scheme and it can be of value to some small businesses in India.
Small businesses could not reach their potential customers all over India because the maintenance of distribution was required so that tax in state-level could be minimized. However, this changed after the GST’s introduction. GST enabled small businesses to do business easily all over India without any strings attached. Small businesses were able to compete with other businesses, large and foreign, without spending too much money like before on various taxes. While the compliance costs increased for small businesses, a common complaint, the benefit from the common national market gave the much-needed boost that outweighed the costs.
When goods were needed to be transported to different states, there were taxes before GST came into effect. These entry taxes were something extra that business owners had to deal with and it added to the costs substantially because of the multiple-tax system. With the introduction of GST, the cost of logistics decreased by a large margin. This has made it easier for business owners conducting business in India as goods can now move without delay like earlier. Since the tax has reduced and there is one tax to pay instead of multiple taxes, the total costs have decreased making it easier to transport goods between states.
The launch period was difficult for some small businesses because of the new procedures and the way things were done. But no one can deny how much easier it was for small businesses after GST was introduced. It made competing easier, took the guesswork out of a lot of things, and enabled small businesses to pay taxes more easily than before. The transparency factor was much appreciated by businesses all over India and it enabled efficiency which was a far cry from the taxation system in the pre-GST era. Making things easier, on the whole, GST has been accepted by SMEs in India and had a positive impact.