Will GST Make SMEs More Profitable

The arrival of Goods and Services Tax (GST), a single window taxation system, is supposed to help SMEs which are often burdened with taxes and its compliance. Whether the GST will be a boon to SMEs or not is still to be seen, but it is expected that all the states will pass this Constitution Amendment Bill in their respective Assemblies, helping in initiating a single window indirect taxation system. 

With over 51 million SMEs in India, it contributes 50% of the industrial output and constitutes India's 42% export earnings. Thus SME, the leading employment generating sector other than IT, holds the key in the post-GST era and understanding of its impact. 

Marginal reduction in tax payments 

For most SMEs, tax payment is a big issue when the organisation is yet to flourish. Before GST, business organizations having a turnover of more than Rs 5 lakh had to pay VAT registration fee. With GST, the lower ceiling for such businesses will be Rs 20 lakh (Rs 10 lakh for NE states), providing a huge relief to young entrepreneurs, allowing more categorical investment, leaving a room for reaping benefits in the near future. 

The CEO of Honcho Commercial Pvt Ltd, Tanay Ghosal says, "Exemptions up to Rs 20 lakhs, along with the registration required for individual or company having a turnover of Rs 20 lakh or above which was previously Rs 10 lakh will help the startups. All SMEs will benefit as they would not need to register if they have a turnover less than Rs 20 lakh." 

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Govt Starts Twitter Handle To Answer GST Queries

The Union government started a new twitter handle to answer industry queries related to the Goods and Services Tax (GST) proposed to be implemented from July 1.

"The Department of Revenue has opened a new Twitter Handle @askGST_GoI to invite queries from all taxpayers on GST," a Finance Ministry statement here said.

"All taxpayers and other stakeholders are welcome to direct their queries related to GST on the said twitter handle for early resolution and clarification," it added.

Earlier this month, the GST Council at its meeting in Srinagar decided on the fitment of over 1,211 commodities and 500 services in four tax slabs of 5, 12, 18 and 28 per cent.

The Council, comprising of states' Finance Ministers and headed by Union Finance Minister Arun Jaitley, will take up the fitment of the remaining six goods, including gold and precious metals, textiles, bidis and branded commodities at its next meeting here slated for June 3.

Meanwhile, the Confederation of All India Traders (CAIT) said in a statement that the various tax slabs under the proposed pan-India indirect tax regime of the GST has created an environment of anxiety and concern among the trading community across the country

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Time opportune for RBI to slash interest rates

Industry body CII said the time is opportune for the Reserve Bank to cut interest rates as inflation is likely to remain at moderate levels. 

"The RBI and the Monetary Policy Committee are being cautious in not recognising the significant decline in inflation. Global commodity prices have moderated and food prices are down," CII Director General Chandrajit Banerjee told PTI. 

On the performance of the Narendra Modi led NDA government, which completed three years in office, Banerjee said there is now optimism that economic growth will accelerate, macro-stability will continue and inefficiencies in the economy will be brought down. 

"The many steps taken to attract foreign investment have borne fruit. In industry, we are confident that the investment cycle will pick up soon," the CII director general said in an e-mail response. 

He said the businesses and government need to work together to build a strategy for a stronger economic base. 

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GST filings will help SMEs in securing credit

While small and medium businesses are expected to face teething trouble in complying with the Goods and Services Tax regime, the new tax system will also open an opportunity for them to access credit as GST filings are set to become a significant data source for flow-based lending.

Both banks and digital lending players say GST filings can be the best trove of information to lend to small businesses and will also reduce risks and cut costs while scoring these businesses for credit worthiness.

“GST will help make invoicing and data analytics around businesses more credible. In the long term, it will be beneficial for both SMEs and lenders,” said Rajeev Ahuja, head of strategy, retail and financial inclusion at RBL Bank.

“For banks like us, it will help reduce costs of doing business. Today, assessing small business involves feet on street and operational work. With GST, there will be a significant opportunity for many service providers to leverage that data. There will be more authentic information on small businesses, which can also help reduce risks in lending,” he added.

GST, which is set to roll out from July 1, is expected to see eight million taxpayers come under the new tax regime, with more than 2 billion invoices expected to be filed every month.

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The GST Economy - One Country One Tax

The Goods and Services Tax (GST) bill was passed with a full majority in the Lok Sabha on March 29, 2017, and on April 6, 2017, in the Rajya Sabha. President Mr. Pranab Mukherjee on April 11, 2017, signed GST bill and made it a law, introducing the biggest indirect tax reform in India. The expected rollout date of the GST was April 1, 2017; however, it is now scheduled to be implemented from July 1, 2017.

At present, the structure of indirect taxes in India is very complex as there are many types of taxes levied by the Central as well as State Governments of India on goods and services. Some examples are - Entertainment Tax on movies, Value Added Tax (VAT) on products and services, Excise Duties, Luxury Tax, Import Duties, Service Tax, Central Sales Tax, and so on.

Wouldn’t it be convenient for both of the buyers and sellers if there is just one unified tax rate in India instead of multiple taxes?

This is possible with GST! If you are not aware of this standard taxation policy which is soon going to be implemented all across the country, here is everything you should know about it:

GST: A Brief Introduction

GST (Goods and Services Tax) is a “single taxation” system which is expected to abolish all forms of indirect taxes on goods and services in India. Any individual, who is supplying, providing or consuming goods and services, has to pay GST.

It is collected at each stage of the supply chain on value-added goods and services. Once implemented, the manufacturers, wholesalers, retailers and consumers will have to pay the applicable GST rate. They can claim it back too, via tax credit mechanism.

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How Enforcing Input Tax Credit Will Dent The SME Economy

Long before Goods and Services Tax (GST), India’s biggest tax reform since independence, got approved by the parliament, accountants, lawyers, tax-paying enterprises and even technology companies had a chance to participate in its drafting by sending their suggestions and apprehensions. 

However, neither the tax paying community nor the government could make good use of these laws; as a result, India's small and medium enterprises (SME) are facing a huge threat in the form of input tax credit. 

As per the GST Act, an enterprise can reduce the tax already paid on inputs when it is paying tax on output; this is commonly referred to as 'input credit.' 

It necessitates that every B2B transaction that a single company does with every party be computed monthly. As per this, enterprises have to capture every invoice to confirm how the corresponding party (supplier or buyer) captured it. 

Tax authorities can then be able to check if the business is understating the number of business transactions and their values. 

In India, there are more than 6.5 million businesses that have to do these computations; this means that there would be around 1.2 billion to 2 billion invoices getting uploaded every month, and that too after both parties agree on every transaction. 

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CII-Deloitte Report

Before the Goods and Services Tax (GST) reform is rolled out, India should take cautious lessons from other nations which have also introduced similar legislation, industry leaders have warned.

A report released on Monday by the Confederation of Indian Industry and tax consultancy major Deloitte, which incorporates the views of Chief Financial Officers (CFO) of major companies, said the experience of other nations like Malaysia, Canada resonated with challenges currently being faced by India.

With the GST Council approving on Saturday a draft law that seeks to compensate states fully in case of revenue loss as a result of GST, the tax reform is widely expected to come into usage by July 1.

The report also revealed that almost 57 per cent of all surveyed CFOs felt that GST will have the biggest potential impact on operations with wide repercussions for cash flow, tax accounting, supply chains, procurement as well as the technology framework.

On this note, the report called for adequate preparation and advance knowledge of the tax laws and rules is crucial for the success of GST.

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