GST: Let Us Welcome New Taxation With Hope

We feel that GST will augur well for SMEs in India as it will expand the opportunity and eases the limitations.

After debating over three decades, GST finally made its entry into Indian Economy and will be effective from Midnight today. There are apprehensions on the tax rates, rules, processes, technologies, preparedness etc.

However, it is now a reality and SMEs need to look beyond the narratives to pragmatically looking at how they can navigate and capitalise the opportunity. It is well said that opportunities and challenges go hand in hand. The introduction of GST is no exception.

We look at the positives which are many and help SMEs grow in size and visibility. Some of them are:

Easing the multi-state operations: Currently, the Sales Tax department in different states seek separate VAT registration and also charge varying tax rates. This not only creates complexities and burden with increased compliance costs which are very unaffordable for SMEs who mostly survive on a thin margin. The Uniform GST will standardise the process.

Wider market access: In the current system, many SMEs desist from expanding into other states due to vexed taxation rules and larger compliance costs associated with such expansion. Thus SMEs limit their customers within the state as they will have to bear the ultimate burden of tax on interstate sales if they opt for sale outside, thus reducing their customer base. Similarly, big corporations prefer to procure goods based on SME locality in order to reduce overheads.

GST will allow flexibility in the transfer of goods across states and reduce the cost of doing business, as the reform will cut down multiple taxes imposed by state and central government.

Hence implementation of GST will expand the market access and it will be easier for SMEs to doing business in any state.

Lower logistical overheads: As GST is tax neutral it will eliminate time-consuming border tax procedures and toll check posts and encourage the supply of goods across borders.  According to a CRISIL Analysis, the logistical cost for companies manufacturing bulk good will be reduced by around 20%. Such costs can be crucial for the survival of SMEs. The working capital cycle gets shortened with decreasing time consumed in logistics.

An opportunity for unorganised to change the business practice: Some of the entrepreneurs have expressed the concerns that a unified market would create more competition in an already crowded and price-sensitive arena with a large number of unorganised players. However many people view that unorganised players have been compelled to stay in that status due to the circumstances prevailing, mainly peers. The introduction of GST is an opportunity to come overboard. The transition expected to be positive and opens up brighter growth path to chart out.

Producers state v/s consuming state: There was a debate on pros and cons with reference to producer state versus consuming state within the Union of India. Though such a debate is relevant to states tax collection point of view, the expanding opportunity and ease of doing business due to stable and uniform tax structure are positive for entrepreneurs in producing states.

Ease of compliance: All the compliance procedures under GST — Registration, Payments, Refunds and Returns will now be carried out through online portals only and thus SMEs need not worry about interacting with department officers for carrying out these compliances, which are considered as a headache in the current tax regime.

No doubt that GST is aimed to increase the taxpayer base, majorly SMEs into its scope and will put a burden of compliance and associated costs to them. But in the long run, GST will turn these SMEs more competitive with a level playing field between large enterprises and them.

Global Competitiveness: Increasing market reach and price competitiveness likely to contribute to improvement in the business fundamentals of SMEs. Thus Indian SMEs would be able to compete with foreign competition coming from cheap cost centres such as China. It is fact that under WTO accord, the individual countries have limited leverage to beat the competition from imports. Any attempt to improve the competitiveness of domestic business entities will obviously improve the competitiveness of the country as a whole.

Price discovery: Many SMEs confine their activity to the state where they manufacture the products which in turn affect their price discovery. New found opportunity under GST will help to discover better price and larger volume of business.

Unifying Tax jurisdictions means no more special tax sops or schemes: Many states in order to attract investment offer tax incentives. Still, the memory is fresh of special tax jurisdiction created in Hill States such as HP, Uttarakhand and J&K in 2003. That had severely impacted the viability of doing business for many SMEs in the rest of India. Many had jumped on that bandwagon and ended in causing huge loss for themselves. It literally damaged the competitive advantages possessed in various industrial clusters. Now the entrepreneurs can breathe easy as such tax differential unlikely to re-visit.

Analysing the benefit of GST in the wider canvas:

The debate on GST and its implications is unlikely to recede in the near future.  It is going to divide the entrepreneurs into groups.

However, if we read the introduction of GST along with reforms undertaken in the other areas, we will appreciate its positive impact on SMEs. They are:

a) Investment into Infrastructure:

Govt is accelerating investment into infrastructure since long. In the recent years, the focus has been shifting to encourage rail-based transportation logistics. If anticipated investment into infrastructure in general and railways in particular, the cost competitiveness of SMEs tend to move up.

b)The introduction of Bankruptcy Code:

Doing business with clients far away has an element of risk in terms of recovery of dues. Recently enacted Insolvency and Bankruptcy code are emerging as the powerful weapon for operational creditors such as SMEs to compel the corporates to pay the dues.

Please read Insolvency and Bankruptcy Code 2016 (IBC 2016)- A ray of hope for distressed SMEs in India.

If we analyse the trend so far in filing bankruptcy cases, we can see that smaller operational creditors filing cases are bigger in number than others. Probably it is not out of place to assert that SMEs have got equal powers with banks in dealing with defaulting corporates under the new law.

These measures will complement doing the business country wide ably triggered by GST.


Unarguably, GST rollout causing apprehensions and the impact on SMEs across various industries will vary. It is quite natural for a pervasive, country-wide tax reform, as GST is, to have a mixed opinion.

We believe a simplified tax structure and a unified market will improve operational efficiencies among SMEs in India.

Let us welcome the new tax laws with hope. The impact cannot be uneven as it is nondiscriminatory and applicable to the whole of the country on equal footing.