Cryptocurrency Prices by Coinlib
logo
Logo

Difficulty in transition towards GST for SMEs

While GST is aimed at bringing more transparency across different industries, it will become difficult for entities to maintain records in every transaction. The process could be tedious and lead to a higher cost of compliance. Apart from the same, the working capital requirements for the manufacturers will increase because the companies as well as the distributors will be required to pay GST every time the stock is dispatched. This includes the stock supplied to their own warehouses as well. After the same, they can claim credit on the input tax paid by them. The process of credit will be online and in real time. This basically means that the small and medium enterprises will have a difficult transition. 

The small and medium business community forms a major part of the economy and with the cost of compliance going really high, these businesses are going to be in deep trouble. The linkage of input tax credit to the payment of supplier tax is very tedious for a small business. Since the uploading of every invoice will have to be done on a regular basis, every business will have to designate an accountant for this purpose. This ultimately increases the cost for a small business.

Various accounting and tax firms are operating as licensed GST Suvidha Providers in order to allow a smooth transition. They aim to help businesses comply with the GST processes and provisions. Depending on the kind of product or service and the type of business, the charges will be levied. These charges range from Rs. 500 to Rs. 5000, this may also hurt the margins of small businesses and will work as an additional cost burden for them. It has been noted that large consumer goods companies are ready with the GST IT systems in place, while for the other stakeholders, the scenario is absolutely different. Many wholesalers lie out of the tax bracket currently, while a few are trying to improve their margins by tax evasion so a certain amount of pushback is expected from their end as well.

The new tax proposes to lower the tax exemption limit for manufacturing units. The current law does not require any manufacturer to pay any duty if the turnover is less than Rs.1.50 crore. GST aims to lower the tax exemption for these units, which will bring a large number of SMEs under the tax net. The SMEs will now be required to pay tax, adhere to the filing requirements and also bear the burden of additional cost compliance. Documentation to claim the credit on input tax is also necessary, hence the SMEs will require to put in additional money as well as additional work so as to ensure that they are adhering to the new tax norms. It remains to be seen to what extent does tax evasion reduce in the GST, but the compliance cost will definitely rise. For now, wait and watch is the best policy to adopt!

  • Share
logoSubscribe now
x
logo