(Source: BloombergQuint)

GST Is Not All That Bad, Say Small Businesses

India’s over 7 crore micro, small and medium enterprises were expected to be hit the hardest when the Goods and Services Tax was implemented on July 1, 2017. A year later, some of them are not as pessimistic. Businesses say that while the new indirect tax regime took some time getting used too, its benefits cannot be ignored.

GST 1 Year: Upside For SMEs

New rates, change in the tax administration process, overhaul of the return filing procedure, technology upgrade – preparing for GST was no mean task for small businesses. Chandrakant Salunkhe, president of the SME Development Chamber of India said notwithstanding initial hiccups, the new tax regime has furthered the government’s ease-of-doing business initiative and nudged small businesses improve their business practices.

SMEs don’t have the manpower. It was difficult for them to visit different offices – VAT, excise,service tax etc – in the pre-GST regime. Now they are smoothly running their businesses. It has also helped them improve their turnover since all transactions are coming on their books.
Chandrakant Salunkhe, President, SME Development Chamber Of India

They are also able to attract capital with improved balance sheets, he added.

For Al-Aziz Plastics, which manufactures electrical accessories, PVC pipes, fittings and water distribution products, preparing early helped make a smooth transition. Several state and central taxes getting subsumed under GST had a positive impact on business, founder Uday Adhikari pointed out.

We had to pay central excise, VAT, octroi. Octroi was a big headache. You had to pay the tax and corrupt people. With GST, there’s just one rate; prices and corruption have come down.
Uday Adhikari, CEO, Al-Aziz Plastics

Also read: GST Turns One: E-Way Bills Brought No Respite From Corruption, Transporters Say

GM Warke, managing director of Himedia Laboratories, a Mumbai-based manufacturer of culture media for microbiology with application in pharma, food and agriculture industry, agreed. The new indirect tax regime also means lesser forms to fill, he said.

We export our products to various countries. We had to call excise department officers every now and then to sign our documentation and entertain them. That has gone away. For inter-state movement of goods, we had to fill various forms prescribed by different states, if we wanted to avail of concessional rates. We don’t have to do that now.
GM Warke, Managing Director, Himedia Laboratories

Also read: The GST Agenda For The Second Year

GST 1 Year: Downside For SMEs

But not all aspects of GST have been a joyride. The speed bumps included transition goods, lack of clarity on product codes, and increased working capital requirement.

The transition from the VAT and excise regime to GST was a painful one, especially for goods that were manufactured prior to July 1, Warke explained. And lack of clarity on HSN codes – prescribed by the government for various products – continues to be a problem.

Our distributors were reluctant to take goods from us that were manufactured pre-GST. They were unsure about how the input tax credit will work. It was a big problem in the first and second quarters. Now, the biggest issue is of HSN codes. The list provided by the government is not exhaustive.
GM Warke, Managing Director, Himedia Laboratories

For Adhikari, the biggest problem is the increased working capital requirement.

“When we sell, we get paid after 90 days or 120 days but I have to pay GST today. So, the working capital requirement has gone up. We try and tell our customers to pay us early but they don’t listen.”

And then, there is the never-ending ask of rationalisation of rates. All three businesses BloombergQuint spoke with urged the government to reduce rates further to help make their products competitive.

They also made another important point – the loudest voices against GST are of those who were used to doing business in cash and could evade taxes. Those who want to do a clean business, they said, are broadly happy with GST.