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Impact On MSMEs

“A new tax reform can be an opportunity to re-engineer business demographics"

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The GST Council has burned the candle at both ends to ensure India can manifest a major tax reform on 1 July, 2017. While GST aspires to be perceived as “One nation, One Tax”, and carries the flagship of ease of doing business in India, it is yet to be seen how this colossal tax reform will reshape the Indian economy and business dynamics for micro, small and medium enterprises (MSME).

Business Strategy 
A new tax reform can be perceived as a new opportunity to re-engineer the business demographics of a company. It is imperative for all MSMEs to capitalise on this opportunity by strategically coordinating and integrating activities of various functional areas of their business, and to formulate clear business strategies to ensure smooth transition into GST.

The MSMEs are, however, struggling  with the complexities in terms of ‘place of supply’ and no clarity on the mechanism of anti-profiteering clauses, which although a concern for conglomerates, can be a threat to MSMEs.

Financial Preparedness

Since outward and inward supplies would be electronically matched every month, availing of input tax credit by the buyer would be based on the compliances of the supplier. Any failure by the supplier to declare his outward supplies correctly would lead to mismatch of returns leading to reversal of credits availed by the MSMEs.

Supply Chain Management

The MSMEs would be required to analyse their supply-chain to ensure credits are fungible. They would not be in a position to take just any input tax credit. Thus, vendor selection and management under GST becomes crucial.

Technological Preparedness

Upgrading IT systems by MSMEs would require a sizeable investment. In addition, training employees for the new regime is also a challenge. This would lead to increased overhead costs for the MSMEs.

Enterprise Resource Planning (ERP)

This aspect does not cover one specific department or activity; it covers all from manufacturing to sales, human resource, marketing and customer service. With GST on its way, all businesses need to integrate the new taxation system, new invoicing formats, various records and registers with their existing ERP system.

Compliance Cost
GST regime operates on a self-assessment model, requiring MSMEs to file several returns and execute other compliances with monthly frequency. Increase in compliances would lead to increase in costs, and accordingly, one would have to factor the compliance costs into doing business.

Registration

Considering the state of the registration portal, the MSMEs are  facing great difficulty in getting registered.

With the roll-out date unlikely to be pushed beyond 1 July to give any additional time to prepare, one can only expect the GST Council to accept certain errors and extend support by allowing rectifications during the initial few months with no penal consequences.

Disclaimer: The views expressed in the article above are those of the authors' and do not necessarily represent or reflect the views of this publishing house. Unless otherwise noted, the author is writing in his/her personal capacity. They are not intended and should not be thought to represent official ideas, attitudes, or policies of any agency or institution.


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Suresh Rohira

The author is Partner, Grant Thornton (Indirect taxes & GST)

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