At the stroke of midnight on 30th June 2017, India formally entered the era of “One Nation, One Tax.” While there’s a lot of optimism around GST (Goods and Services Tax), there are apprehensions too. Some teething troubles are to be expected, given how massive this new regulation is.
But, given some time, one can witness the significant impacts of GST on businesses. Apart from simplifying tax payments by companies, GST will bring in transparency and lead to MSME businesses being organized, thereby boosting the overall growth momentum.
Here’s A Look At How GST Impacts Small And Medium Businesses:
SMEs are a significant contributor to the national economy with more than 50 million units all across the country. Prior to GST, the MSME sector was plagued with myriad taxes. They had to deal with nearly 27 different taxes, which impacted their growth and productivity massively.
Simplified And Easy Taxation
With GST, businesses no longer have to deal with a plethora of taxes. This means that inter-state business is smooth and streamlined, thereby eliminating supply chain bottlenecks. Additionally, under the GST framework, businesses can avail input tax credit via the supply chain, thus avoiding dual taxation.
This means, enterprises now prefer working with other suppliers in the chain who have paid GST and documented the trade so that they can easily avail credit. Looking at the big picture, this means more and more organisations, will fall into the habit of documenting production and sales, thereby coming under the ambit of taxation.
Formalization Of MSME Credit
Funding is one of the major problems faced by MSME businesses. Many of these businesses before GST lacked proper documentation and bank statements. This made it highly difficult for them to avail funding from private financial institutions and banks.
With GST, SME businesses have to follow proper documentation to avail tax credit. This means lenders can quickly verify the cash flow statements of these enterprises and check whether they’re creditworthy.
So, finding the right funding now becomes easy for small to medium businesses. With the increased availability of formal credits, businesses now can get the necessary funding to boost their growth.
Ease Of Business And Faster Delivery
Earlier, to operate a business in various parts of the country, one had to have a VAT number for multiple states. Additionally, varying tax rules in different states of the country added to the complications. With GST, all you need to do is get a single GST number and run your business in any part of the country. This is a boon for SMEs as it helps in expansion and business growth.
Earlier, businesses had to pay entry tax for products entering the border of another state. With GST, there’s no entry tax, meaning you can manufacture and sell your goods in any part of the country. This means optimised logistics and seamless transport and delivery services.
On Track For Strong Growth
Economists predict that in 2018–19, India would witness GDP crossing 8%, thanks to the overall improvement of the economy along with reforms like GST. Consumption is already on the upward scale. With the global economy and commodity prices stabilising, India is all set for a steady growth in the coming years. And, this means your business is all set to move forward thanks to GST.