Impact of GST and how can SMEs make the most of it

GST: a reform in work since 2000

Is it ideal ?

• 1 union govt is working with 30 state govt trying to get on the same page and deliver a product.
• Gst is far from being ideal but is a small step in d right direction.

Problems  faced by micro industries :

• Those exempted under the earlier excise regime (goods sold less than or equal to 1.5 cr) were not registered under excise. People who have already registered are far more organized and are easily able to adapt to GST. People feel uncomfortable bcoz this limit has cm down to 20 Lakhs but the govt has given a window of the composite scheme up to 75lakh .

Eg. Ancillaries which were @0%, the manufacturing services are kept@18%.

Bt that’s not d case with most SMEs . If u talk about the sucess of corporate sector, the micro and small industries have a huge contribution. But they r not yet ready for GST beacuase it will increase their cost they will have to keep a full time fellow to do tax return and deal with the income tax department.

• Their knowledge about the same is limited and a lot of awareness and education needs to be done before hand
• Most of d problem were created by delays in payments to SMEs in India. Now with gst, it is gonna add to the working capital requirements of small and micro industries because you have to pay within certain time limit of time or else fine will be levied. If u dont pay for 3 months, you’ll be blacklisted.

What we need: instead of fines, we need to hv more incentive based system that gives enough time for such companies to become part of the system. Banks have a major role to play.

• Most of the SMEs are run by single-proprietor, with little experience and are not very educated. SMEs need additional support for this type of tax regime which is coming up.
• Micro enterprises aren’t tech savvy.

View on gst:

1) north- positive and optimistic

2) south – negative and pessimistic

IMPACT OF GST:

1) With time, as the tax base increases, the highest tax rate of 28% may reduce.

2) All this efforts will bring large section of trade and industry (including micro and small enterprises) into the mainstream.

YOU ARE A PART OF GST AND YET NOT A PART OF IT:

Oil and gas sector- mixed bag as it is not fully under gst.

5 products not under gst but to get them to the market, a certain gst has to be paid.

Eg. If buy fuel, u pay vat on petrol bt to transfer petrol from refinery u must pay gst and that gst is going up on 5% reverse charge.

{reverse charge under gst means that the liability(collect and pass on to the govt.) to pay tax is by the recipient of goods / services instead of the supplier.}

We need to quickly adapt to this change instead of making many companies below 20 lakh. Larger companies have important role to guide supply chain to ensure that they are running smoothly.

JOB CREATION:

1) increased rates for tax consutancy

2) more demand for advisors and it solution providers

A HINT IN 2016 AMENDMENT:

Constitutional amendment in sept 2016 said that we are re allocating powers of federal and state govt and giving dual powers. But the amendment also said that state wont hv any power from sept 2017.

This was a clue for industries to be prepared.

LONG TERM GAINS:

1)Transparency that results from moving towards a more complient economyis very good

2) SMEs will continue to seek benefit by increasing investments in that area bcoz it could mean possibility for collaboration in technology and know-how transfers.

WILL GST BENEFIT ONLY LARGER ENTERPRISES

1)They get equally impacted when their vendors( who fall under SMEs) aren’t prepared.

Eg. If my logistics partner or distributer or wholesaler isn’t GST compliant, the chain will break.

CRITICISM :

1. People criticize different taxation rates under gst and argued saying that there are many countries in the world where they have single tax format.

I believe that India needs an India-centric solution and not a western or eastern solution.

Eg. A 2 days strike in 1985-86 when govt wanted to computerize banks but today it has positive impacts. We resist reforms as it takes us out of our comfort zone.

2. Lot of criticism about dual rate structure, which lawyers call characterization of issues, are potential areas of debate.

I don’t think these concerns are valid because in the past characterization issue arose in the past because state govt. didn’t follow harmonized Interenational classification code for products. But now GST law mandates the same.