The Prime Minister of India has made many monetary reforms that have had both positive and negative impacts on the economy and the businesses that operate in it. The GST was the latest such reform which was rolled out effective the 1st of July, 2017. Thankfully the SME sector – which is often cited as the backbone of the economy, was handed the right side of the stick and there are many positive impacts that the SMEs in India can benefit from.

When the news of Goods and Service Tax started to trickle in, yes, there was confusion, uncertainty and perhaps even slight panic on how things will work for SMEs. The sector is vulnerable and often plagued with unpredictability. Also, with small business financing, management and success riding on several variable factors, a change – even a good one can be misinterpreted. With the new tax regimes, there were bound to be some concerns. However, now that GST is a few months old, here is a crisp version of how it will actually benefit SMEs in India.

The ease in starting a new business

Those entrepreneurs who are looking to start new businesses in the country had to meet stringent compliance criteria of every state that they wished to operate in. With different laws and regulations, every business was required to complete a VAT registration under each different applicable law. With GST being implemented, everything is centralised. Life becomes much simpler and SMEs in India can expand or even start a new business with a little more ease.

Quicker logistics and delivery

GST will abolish all entry taxes that need to be paid at interstate lines and toll booths. This will bring down the cost of transporting goods across the country. With no more serpentine queues, goods will move faster and pick the pace up for all businesses as they will be able to delight their customers in a shorter cls of time with quick deliveries.

Make in India boost

With the relaxation of the indirect tax, the Make in India campaign will get a strong boost. The manufacturer will get the benefit of input tax credits while the end user will only have to pay the indirect tax that the customer-facing retailer – the last link in the supply chain – will charge.

Reduction in tax burden

Up until GST was introduced, businesses had to pay a Value Added Tax (VAT) if their annual turnover was 5 lakh or more. There were also a host of taxes such as Excise, the original Service Tax, Entertainment Tax, Surcharges, Octroi, among others. With GST, however, the exemption limit has been raised to Rs 20 lakhs, a huge relaxation for SMEs. Also, GST combines all the previous taxes under one tax structure.

Are the fears of SMEs unfounded? Only time will tell.

Undoubtedly the impact of GST on SMEs is going to be favourable. It is still in its nascent stages. A lot rides on how favourably this revolutionary tax regime is accepted at various state levels.

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