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GST: A Painful Transition For The SMEs?

With few days left for the ‘game changing’ law to be implemented in the country, the initial hiccups are bound to take place. However, how steadily the government make this transition for the SMEs easier, will ultimately help the industry reap its real benefits

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As time draws closer to the historical reforms, GST, there is a parallel rise in the agony of the  SMEs (small medium-sized enterprises) Not disbanding completely the benefits accruing to this reform, there is little or no doubt in the fact that the first 3-4 months would be a nightmare for the small traders and the SMEs. Out of 160 countries where GST has been implemented, almost 148 countries have had initial hiccups including inflation and India would be no different from this league.

The SMEs have been facing the uphill task of preparing for the new rule. A lot of experts have been of an opinion that the design of the reform has been done, keeping in mind the large businesses, negating the problems of the smaller ones.

“It would definitely be a nightmare for a lot of people, because, one, the understanding hasn’t percolated down to all the dealers and the SMEs. Second, the release of the law has not been done at a swift pace. The industry has got only 4-6 weeks to implement the GST”, says Harpreet Singh, Partner, Indirect Tax, KPMG, who mentions that even 4-6 weeks of time frame is not available as out of 14 set of rules, seven are yet to be finalised by the council, who are scheduled to meet this week.

How can the government expect the industry at large, especially the smaller businesses to prepare, unless they have the complete law in front of them and the same law explanation in a comprehensive manner?

Comparing the other countries, Singh mentions that how  Australia released sector specific FAQs in a very lucid language, before implementing the new law. Apart from that, there were government sessions at various forums. But everybody in India is struggling because the law is not clear and not completely released. The tax officials are themselves struggling, how will they administer the new law?

“There are concerns regarding the reaction of the industry post GST with the lack of such government initiatives. In terms of percolating the knowledge, only 25 per cent of the groundwork has been covered”, says Singh.

Therefore, GST comes with three major concerns for the SMEs- lack of time to prepare, unanswered questions and lack of clarity regarding the new law, which would lead to various interpretations and consequently litigations and third, the technology up-gradation for GST compliance.  

SMEs have a major drawback of infrastructure. They are not privy to a lot of information and need to be explained and trained regarding the GST in a simpler manner.

Dependence on the Chattered Accountant is not enough under the new law, “Today when all the smaller businesses do their indirect tax compliances under VAT or service tax, they only need a tax expert. The most critical thing under GST is that they would now be needing not just a GST expert but some tax technology. Unless they have a good EPR system, with good software, doing compliances would be a huge task”.

 EPR system becomes a necessity as everything needs to be reported on the GST portal, online. In the absence of the same, the SME is handicapped.

Currently, everything is in an excel based format where while filing taxes, excel sheet is prepared and uploaded on the government website. Under GST, it’s not just the returns that need to be filed but also the transactions. The task becomes, even more, mammoth as the number of returns increases under the new law.

Therefore getting the tax technology ready on time, becomes utmost important and a huge challenge for the small businesses “One of the major concerns is that the details to be uploaded, needs to be done in the government given format. Unless your system gives out an output in the acceptable format, how would you upload the details?”

Now, what about the SMEs who, forget the technology, are not even capable of reading, writing and understanding the financial jargons?

Singh mentions that the government has been talking about coming up with ‘GST facilitation centres’ to get the compliances done and ‘tax return preparers’. The later refers to the GST experts, who could help these SMEs with the compliances in various centres across the nation.

However, it's not all dark and gloom. There is the host of favourable outcomes for the SMEs that are likely to bring cheer in the industry.
Today, while doing business there is a lot of ‘tax over tax’ issue, leading to a cascading effect. With GST coming in, the cascading effect is likely to wipe off. Singh mentions that the SMEs don’t realise how they end up paying tax over tax, which will not be the case under GST.

Second, the manual intervention of the authorities under GST would be reducing as everything goes digital, leading to ease of doing business. It will become more of a self-assessment system. Third, though the compliances will be increasing, they would become more streamlined. Standard formats would be used across the country. SMEs need not worry about interacting with the department officers for carrying out these compliances, which are considered as a headache in the current tax regime.

A lot of businesses get impacted by the prices of the same goods in the neighbouring states. A mobile phone might cost different in Delhi than in Noida or Gurugram if the state reduces their taxes. Under GST, the rate of tax being the same would bring a seamless market across the country.

Also, the new businesses are likely to benefit as the threshold to pay VAT registration fee for the SMEs increases from five lakh turnover to 20 lakh. Therefore, if the business turnover is less than 20 lakh, one is not liable to pay the fee.

With few days left for the ‘game changing’ law to be implemented in the country, the initial hiccups are bound to take place. However, how steadily the government make this transition for the SMEs easier, will ultimately help the industry reap its real benefits. They need to up their game of preparedness and address the major concerns to offset the drawbacks of this new law.

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