Top 5 Things SMEs Should Know About GST

Elimination of entry tax at state borders will lead to increased efficiency of inter-state logistics

Small and Medium Enterprises had so far, not often been on the premise of technological advancements. But with the rollout of the Goods and Services Tax, SMEs will have to up their game and make way for technological advancements and transferring their billing and invoicing processes to online. 

Here are a few points that an SME should keep in mind with the rollout of GST:

1. GST will simplify setting up of SMEs and MSMEs as procedural fees and costs of compliance with the overall indirect taxation framework are set to shrink significantly. A unified tax system across states will ensure appropriate transfer of tax credits irrespective of the buyer and seller’s physical locations.

2. Elimination of entry tax at state borders will lead to increased efficiency of inter-state logistics. Newer supply chain algorithms will emerge to map the new framework and minimize landed cost.

3. GST has also done away with the unclear distinction between goods and services. This will go a long way in reducing litigation and tax-evasion opportunities. GST requires every tax-paying entity to self-assess tax and file its returns on a monthly and an annual basis. Returns are to be filed electronically which will reduce errors and lapses.

4. Currently, no excise duty is payable by manufacturers with gross turnover under INR 1.5 crore. But under GST, any entity that supplies goods and services and whose turnover exceeds Rs 20 lakh will have to register in every state where it conducts business. For special category states, the turnover threshold is Rs 10 lakh.

5. GST filings will reduce risk, help SMEs in securing credit. It will help make invoicing and data analytics around businesses more credible. The GST filings are expected to be one of the most significant data points for flow-based lending, given the authenticity and complete information of an SME’s financial health.

Flow-based lending entails lending based on cash flows of a company as opposed to collateral or asset-based lending. GST data will become the largest repository of verifiable cash flows and transactions of business.  Small businesses will be able to provide a secure, verifiable trail of transactions in their supply chain. This will complete the data footprint of an SME and will complete the picture of a SME’s financial health.                             

GST data of SMEs can not only reduce costs but can also speed up the process of underwriting and lending. Potential SME borrowers can provide real time, secure and verifiable data of their GST filings. It will save on the costs of verification and will also cut down delays in processing of loans.

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