GST impact on MSMEs: The Ministry of MSME has not conducted any independent assessment of the impact of demonetisation and Goods and Services Tax (GST) on the growth of the MSME sector, informed Minister of State (MoS) in the MSME Ministry Bhanu Pratap Singh Verma in a written reply to a question in the Lok Sabha on Thursday. “In fact, the MSME sector has shown resilience in terms of GST growth despite the COVID-19 disruptions,” he said citing data on year-on-year growth in GST paid by MSMEs in FY22.
The FY20 and FY21 GST by micro enterprises stood at Rs 2.2 lakh crore and Rs 2 lakh crore respectively while FY22 collection stood at Rs 2.3 lakh crore, crossing the pre-pandemic levels. Likewise, GST paid by small enterprises remained flat at Rs 0.9 lakh crore in FY20 and FY21 but grew to Rs 1 lakh crore in FY22. Similarly, for medium enterprises, the GST paid dropped from Rs 1.9 lakh crore in FY20 to Rs 1.8 lakh crore in FY21 but recovered to Rs 2 lakh crore in FY22, according to the data from the 2022-23 Economic Survey cited by Verma.
Also read: MSME ministry: No information on whether GST badly affected MSMEs
The MoS, however, had informed Parliament in December last year that the MSME ministry hasn’t come across any information related to the negative impact of the tax system even as “numerous measures in respect of GST” were by the government to encourage MSMEs such as first, no requirement of GSTIN on the Udyam Registration Portal up to the ceiling of Rs 40 lakh turnover; second, no registration required for the inter-state and intra-state supply of services up to Rs 20 lakhs in a year; third, no registration required for the intra-state supply of goods up to Rs 40 lakh in a year, etc.
Importantly, an August 2018 study by the Reserve Bank of India (RBI) noted that the introduction of GST had led to an increase in compliance costs and other operating costs for MSMEs as most of them were brought into the tax net. On the other hand, a study by SIDBI had indicated that post-demonetisation and post-GST introduction, the relative credit exposure initially declined for most MSMEs but had recovered fully by March 2018, FE Aspire had reported.
Also read: 6 years of GST: 88% MSMEs see reduced cost of goods and services, says Deloitte survey
Meanwhile, a Deloitte survey in June this year collating 612 responses (including large enterprises and MSMEs) from six industries to comprehend India Inc’s views on GST noted that the tax system has had a significant impact on the Indian economy with 88 per cent of MSMEs reporting a reduction in goods and services costs along with optimised supply chains. MSMEs attributed the reduced goods and services costs to improved uniformity in the GST regime.
According to the survey, 88 per cent of MSMEs said the transfer of CGST/IGST cash ledger balance between “distinct persons” has reduced working capital blockage for businesses.