Independence Day 2022: What freedom small businesses seek from GST-related challenges

Ease of Doing Business for MSMEs: E-invoicing was earlier made mandatory for B2B transactions by businesses with turnover of more than Rs 500 crore. The threshold was brought down to Rs 100 crore earlier this year and further to Rs 50 crore. It was subsequently reduced to Rs 20 crore before finally getting it to Rs 10 crore.

Independence Day 2022: What freedom small businesses seek from GST-related challenges
The latest amendment was notified by the Central Board of Indirect Taxes and Customs (CBIC) last week in line with the recommendations of the GST Council.

Ease of Doing Business for MSMEs: Mandating businesses with over Rs 10 crore turnover to generate e-invoices might further help in curbing tax evasion, but it would also increase compliance and IT cost for lakhs of small businesses who lack digital literacy, experts told FE Aspire on seeking freedom from GST-related complexities in business as the country celebrates its 75th Independence Day on August 15.

E-invoicing was earlier made mandatory for business-to-business (B2B) transactions by businesses with a turnover of more than Rs 500 crore from October 1, 2020, but was brought down to Rs 100 crore from January 1, 2021. It was further dropped to Rs 50 crore and subsequently to Rs 20 crore before finally bringing it to Rs 10 crore. The latest amendment was notified by the Central Board of Indirect Taxes and Customs (CBIC) last week in line with the recommendations of the GST Council. Based on the revised MSME definition, more small businesses (from Rs 10 crore turnover onwards) will now fall under the e-invoicing ambit from the earlier Rs 20 crore turnover threshold. 

“This will impact small businesses. Compliance will be higher, but this might do good for transparent business activities and accountability eventually. If the portal can automatically capture e-sales and give Net GST payable every month and if the assessee can do it in one click, then it would be great. However, ‘over invoicing or under invoicing or dummy invoicing’ cannot get eliminated with e-invoicing. The leakages and seepages will continue to happen. Only honest entrepreneurs will get harassed more with compliance,” K.E.Raghunathan, National Chairman, Association of Indian Entrepreneurs told FE Aspire.

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Moreover, businesses without an in-house IT team might have to incur capital expenses and operating expenses to modify their accounting systems to adhere to the e-invoicing norm and integrate them with the Invoice Registration Portal (IRP). Also, they might have to invest in training their staff on the e-invoicing norms. Extending the e-invoicing mandate might be a bigger challenge from the technology perspective for small businesses based in semi-urban or small towns where broadband connectivity is perhaps not smooth. 

“Small businesses will have difficulty as their expenses will increase due to required IT support and investment in e-invoicing softwares while the compliance and data recorded in real-time will benefit the government. However, compliances are still quite high for small businesses. GST had started as a simple tax but over time it hasn’t remained that easy for small businesses, unlike large businesses who have the resources to handle it,” Mohit Jain, former Chairperson, MSME Committee, PHD Chamber of Commerce and Industry told FE Aspire. 

Umesh Balani, MD and CEO of Gujarat-based Rotomag Motors and Controls which manufactures electric motors for floor care, automation, hydraulic power packs, etc, told FE Aspire that it is a good beginning as sooner or later the automated/electronic systems help improve transparency and reduce harassment. “There would be teething issues and dissonance due to difficulty of changing over to e-invoicing but that happens with any reform,” added Balani who is also the former Chairman of Assocham’s MSME Development Council.

Also read: Over 1.5 lakh kiranas opted for MSME registration since inclusion of wholesale, retail trades under MSMEs

According to the government data, misuse of the Input Tax Credit (ITC) provision under the GST regime is the most common modus of evasion under the GST Law. During the financial year 2020-21, the CGST zones and the Directorate General of GST Intelligence (DGGI) had booked about 8,000 cases involving fake ITC of over Rs 35,000 crore and had arrested 426 people including 14 professionals such as CAs, lawyers, directors etc., a statement by Finance Ministry in July 2021 had noted.

Among other relaxations in the GST process sought by experts included simplifying the registration process, decoupling return filing and actual payment of tax, easier ways to share GST data to get a better loan, and increasing the time limit of 180 days for the payment to suppliers from invoice date.

“A simplification of the registration in terms of proof of documents, flexibility in ID proof of the business owner and proof of business is required to ensure that more businesses can come into the fold of GSTN. Also, ITC is not granted till it is received by GSTN. If returns are allowed without payment of tax, that is, decouple filing return and payment of tax, information about outward supply will be available for further action. This will become a way for MSMEs to manage cash flow issues without becoming non-compliant on GSTN,” Meghna Suryakumar, Founder & CEO, Crediwatch told FE Aspire.

With respect to increasing the 180-day time limit, SuryaKumar said payment terms are decided by parties and often terms of payment exceed the limit of 180 days for MSMEs. In such cases, they are required to have ITC reversed. Being delinked from actual payment/realisation adds to the woes of MSMEs.

Lastly, for easier ways to share GST data for better loans, Suryakumar noted while there are many ways including API-driven ways to file returns, it is not equally easy to share the GSTN data. “The OTP-based mechanism that exists today has many challenges and also does not help grant consent for a period of time.”

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