Understand GST from SMEs' Perspective

GST Bill is set to get discussed in the Indian Parliament, before this bill gets passed from the upper house, SMEStreet has taken a leap to understand the impacts of GST from industry experts.

NEW DELHI, 2 AUGUST 2016: In an exclusive  conversation with Faiz Askari of SMEStreet, Rajeev Dimri, Leader, Indirect Tax, BMR & Associates LLP shared key insights on the upcoming GST Bill and it's impact on Indian SMEs. Excerpts:

SMEStreet: According to you, what are the key drivers and objectives of GST bill?

Rajeev Dimri: Government’s intention behind GST is to expand the taxpayers base and not to enhance tax burden on business / individual tax payers.  Much aligned to this objective, Model GST law released by the Ministry of Finance seeks to bring each person with an aggregate turnover of above INR 10 lakhs within the umbrella of GST.  The limit has been kept even lower at INR 5 lakhs for north eastern states.  This should create a level playing field for organized and unorganized sector by curbing scope of various tax evasion practices such as creation of multiple entities to enjoy high exemption thresholds.  However on the flip side it could vitiate the existing protectionism provided by the government to Small and Medium Enterprises (‘SMEs’) which necessitates them to get out of their comfort zone as far as indirect tax costs and benefits are concerned.

What will be the impact of GST on SMEs and Manufacturers in particular?

SME manufacturers, presently exempt (if annual taxable turnover is up to INR 1.5 Crores) from paying excise duty, would be liable to pay full rate of GST.  This may bring their products up for stiff competition with those of industry leaders in terms of tax costs involved.  Small scale service sector is also likely to face an increase in tax rate under GST as against the present effective rate of 15 percent.  However, better availability of input tax credits should leave the increased tax incidence on services to only marginal.  Trading entities, on the other hand, should largely welcome GST as it creates a single uniform market for them across the country with improved ease of doing business.

From SMEs' perspective how do you look at GST?

Irrespective of the bright side of upcoming GST, SMEs must be mindful of its accompanying challenges such as increase in compliance costs and alignment of IT systems with new processes.  Thus, for the SMEs, GST throws a mix bag of opportunities and challenges to explore.”