Impact of GST on small and medium business

 It is an indisputable fact that small and medium enterprises are the backbone of any economy. They help the economy to push the GDP of the country. It is thus crucial that the business environment has simpler rules for them to operate in the country. So has GST( Goods & Services Tax) simplified the process of business operations or has it impacted them negatively.

Pros of GST on small and medium business:

  • It has become easy to start a new enterprise
If an individual had to start a new business, then he had to register for VAT with each sales department. However, as different states had procedures for registration, the businessman had to go through a lot of complexities. On the contrary, with the coming of GST, there is a centralised system for registration of business. Thus, the rules are uniform for the registration process. To register for the business, they need to obtain a GSTIN number, and the entire process can be completed online, thus easing the complexities of GST registration.

  • Removed the cascading effect of taxation
  Before the coming of GST, there were multiple taxes such as VAT, Sales Tax and Excise Duty etc. Thus, there was a tax on tax. Now, all the multiple taxes have been merged into one single tax of GST. Therefore, the businessmen refrain from the complexities of managing various taxes. Also, with the One Nation, One Tax small and medium-sized businesses, owners or manufacturers now do not need to run to multiple departments to fulfil all the tax-related documentation. They can thus prevent themselves from harassment by filing different taxes biannually, annually, half-yearly etc.

  • Reduced cost of logistics
Standing in long queues at checkpoints and inter-state entry points always added to labour and fuel costs. However, with the GST in place, there is no need to pay the check post costs. Thus it has not just reduced the transportation cost to a large extent but also reduced the time for completing all the formalities and submitting all the essential documents.

  • No distinction between goods and services
Earlier the businesses had to file VAT separately for goods and services. However, now as the tax is levied on the final product, there is no need to file taxes for goods and services separately. 

  • Increased thresholds for business
Earlier, the limits for paying the taxes varied from state to state. For instance, in some states, businesses with a turnover of Rs 5 Lakhs had to register for GST mandatorily, and in other states the threshold limits were different. Also, small businesses whose turnover lies between 5 Lakhs to 10 Lakhs do not need to register for GST.

Cons of GST

  • Multiple registrations
If a person in business has operations in multiple states, then he has to register for each state separately through an online process. However, online registration of business may not be suitable for small business.

  • Penalties for not filing GST
Under GST it is mandatory to file GST returns monthly, and the business cannot claim input tax credit unless they have submitted the returns. Also, there are penalties for filing late GST returns. 

  • Registration mandatory for E-commerce business
E-commerce businesses must register for GST irrespective of their turnover. Also, they cannot opt for the composition scheme as well.

Conclusion: Overall, it may have increased compliance costs, but the process for GST compliance and filing returns has been simplified with the coming of GST. In the long run, it is expected that it will reduce the costs of doing business and further creating a proactive healthy competition.

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