The Goods and Services Tax (GST) was introduced in India on July 1, 2017, with the aim of streamlining the indirect tax system and creating a unified market across the country. GST is a destination-based tax that is levied on the value-added at each stage of production or distribution, making it a multi-stage tax. The tax is levied on goods and services, and it subsumes various indirect taxes such as excise duty, service tax, central sales tax, and value-added tax (VAT).
While GST was introduced with the aim of simplifying the tax system, there have been mixed reactions from small businesses regarding its impact on their operations. In this article, we will examine the impact of GST on small businesses in India.
- Compliance Burden
One of the primary concerns of small businesses regarding GST is the compliance burden. GST requires businesses to file monthly, quarterly, and annual returns, and failure to comply can lead to penalties and fines. Small businesses, which often have limited resources, have found it difficult to comply with the various regulations and requirements under GST. The compliance burden has led to additional costs for small businesses, including the cost of hiring professional help to comply with GST.
- Increased Costs
GST has also led to increased costs for small businesses. Under the previous tax regime, small businesses could avail of various exemptions and concessions. However, under GST, businesses with a turnover of up to Rs. 20 lakhs are exempt from GST. This threshold was raised to Rs. 40 lakhs in 2019. While this has reduced the tax burden on small businesses, those who are not exempt are now required to pay more tax than they were under the previous tax regime.
Additionally, small businesses have to pay GST on various goods and services that were previously exempt from tax, such as transport services, advertising services, and legal services. This has increased the cost of doing business for small businesses.
- Increased Competition
GST has also led to increased competition for small businesses. With the introduction of GST, businesses can now sell goods and services across the country without having to worry about different tax regimes in different states. This has led to increased competition, as businesses can now offer their goods and services at lower prices, without the burden of multiple taxes.
However, small businesses have found it difficult to compete with larger businesses, which have the resources to take advantage of the benefits of GST. Larger businesses can afford to invest in technology and professional help to comply with GST, which has given them an advantage over smaller businesses.
- Technology Requirements
GST has also brought about a technological revolution in the tax system. GST is a completely online system, and businesses are required to file returns electronically. This has led to increased technology requirements for small businesses. Small businesses are now required to invest in technology such as computers, software, and high-speed internet to comply with GST.
While larger businesses can afford to invest in technology, small businesses have found it difficult to keep up with the technological requirements of GST. This has further increased the compliance burden for small businesses.
Conclusion
In conclusion, the impact of GST on small businesses has been mixed. While GST has led to a unified tax system and reduced the tax burden on some small businesses, it has also led to increased compliance burden, increased costs, and increased competition for small businesses. Small businesses have found it difficult to comply with the various regulations and requirements under GST, and many have had to invest in technology and professional help to comply with GST.
The government has recognized the difficulties faced by small businesses under GST and has taken steps to reduce the compliance burden. However, it is important that the government continues to work towards reducing the burden on small businesses and creating an environment that is conducive to their growth and success.
