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GST: Weighing good and bad of landmark tax system on MSMEs

GST for SMEs: As a major reform in the financial sector, GST was very much appreciated as it subsumed most of the indirect taxes levied by the centre and the state.

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Under IBC, there is a moratorium; companies don’t have to pay past outstanding taxes after a defined point.
  • By Manguirish Pai Raikar

GST for SMEs: Two areas regarding the Goods and Services Tax (GST), which caught my eye in the recent past was non-filing of annual returns by almost two-thirds of taxpayers and GST collection having crossed 1.02 lakh crores while the total collection for the period April-July has grown by 6.83 per cent. While the latter statement proves that compliance is better and that participation from the trade community is increasing, the former statement shows apathy from them towards complying with the administrative procedures.

Looking Back

As a major reform in the financial sector, GST was very much appreciated as it subsumed most of the indirect taxes levied by the centre and the state on the goods and services that were traded in the country into one and brought in a simple and workable friendly tax system. Taking stock of what happened in the last two years of its operation, we see that it has been able to bring in the majority of the businesses under its ambit thereby widening the tax base. There were a lot of teething problems initially during the implementation period due to faulty system operation, poor network availability, lack of knowledge and awareness as well as sudden changeover in between the financial year. The government did respond by means of simplification of complex procedures and rationalising the taxation rates. However, giving more time by postponing the dates cannot be the long term solution. The operating system has to be worked upon and the network connectivity has to be improved.

Any change is always resisted in the beginning. Change in the tax structure was no different as it comes with both advantages and disadvantages. MSME sector depended on the consultants who supplemented their work related to taxation both at the centre (excise, service tax etc.) and the state (Vat, local excise) levels. Although a lot of efforts were made in educating those from the trade and business community along with the consultants who had to register themselves with the authorities. There was chaos created initially due to difficulties in the operating system. This tax system was totally online and hence was dependent on electronic devices and the network. Due to ambiguity in the manual and that the clarity in interpretation was not forthcoming, there were some hiccups created during the filing of returns. The government empowerment committee responded with further simplifications and clarifications and also with system improvement.

The Good, The Bad

Advantages and disadvantages go hand-in-hand with all the new reforms. This was true here as well. The major advantage is that it compels all businesses to come under the ambit of this reform. The unified tax system and easy input credit avoid cascading effect of all the taxes. Since this tax system is applicable all over the country, it removes the barriers of interstate movement of goods. This also helps in reducing the operating and logistic costs. There is no need for multiple warehousing anymore. It is a simple and smooth operation but the online operation of return filing and making payments entails one-time investment in hardware and software. MSME entrepreneur can operate it from anywhere and does not waste constructive time. Besides for him/her, it is dealing with one entity instead of multiple entities which he/she dealt earlier.

Disadvantages are mainly due to time constraints and infrastructure deficiencies. Many a time the network is not available coupled with power failures. Secondly due to non-performance of the supplier in uploading in time reconciliation does not happen and the purchaser is deprived of input credit. Annual returns filings have a lot of complications associated with it that needs to be simplified and streamlined. The constant change in timelines also creates confusion and therefore strict deadlines should be adhered to. There should be penalties for non-filing and non-payment. The burden should not be on the purchaser who is in possession of the legitimate invoices. The constant changes in the tax structure necessitate a change in the software. This adds to the cost of operation. This could be subsidised or free operating programme can be introduced by the GST department. This will help and assist even the smallest taxpayer to be tax compliant.

(Manguirish Pai Raikar is the Chairman – MSME at Assocham National Council. Views expressed are the author’s own.)

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