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Finance / GST rate

5 Key Challenges faced by Small Businesses under GST

Business owners should understand that the teething problems will only prevail for a short time, as in the case of demonetization
5 Key Challenges faced by Small Businesses under GST
Image credit: Pixabay
- Guest Writer
Founder, TurningIdeas Ventures
4 min read
Opinions expressed by Entrepreneur contributors are their own.

You're reading Entrepreneur India, an international franchise of Entrepreneur Media.

With the implementation of GST, the owners of small businesses have been the ones who have been negatively impacted the most. They are fraught with hesitation while working in the new regime and rightly so, but the business owners should understand that the teething problems will only prevail for a short time, as in the case of demonetisation. The government is continuously working on simplifying the compliance procedure and easing the transitional pain for the taxpayers. Having said that, there are some challenges in GST that have been a source of worry, for the small and medium-sized enterprises (SMEs).

Filing GST is complicated

The SMEs are having trouble understanding and adopting the necessary requirements to comply with the new system of indirect taxation. Filing three returns in a month, registration rules, complex refund rules - there are multiple compliance issues that are worrying the businesses. In these past three months of GST implementation, the government identified the pain-points that were making compliance difficult for SMEs. The council met recently, to ease the GST compliance procedures, especially for the small businesses. The limit for composition scheme has been increased to Rs 1 crore. SMEs having an annual turnover of Rs 1.5 crore can file GST returns, quarterly. Government has even launched helpline systems on the social media to instantly address the problems and queries faced by businesses. You can also avail the services of application service providers (ASPs) that will help you ensure complete GST compliance in the easiest possible way.

Blockage of Working Capital

Liquidity crunch is another challenge for small businesses and particularly exporters. In GST, funds will be maintained in the form of an electronic credit ledger with the tax department. This credit ledger will keep a record of all your tax liabilities. In the case of services’ sector, the rates have been increased from 15% to 18%. This will force the taxpayers in the sector to face some blockage of working capital. Government is currently working on a solution to this problem as working capital is very important, particularly for smooth functioning of small and new businesses. For the exporters, the government is working on an ‘e-wallet’ system that will be created for each exporter by April 1, 2018 to ease the process of refunding their returns. Till then, the exporters will have to pay a nominal GST of 0.1%. Exporters will also receive refunds from 10th October, which would help in resolving cash flow issues.

All the necessary GST compliances have to be done online

This is proving to be a very difficult task for the small and medium businesses as most of them lack the necessary technical resources for the same. There are many ASPs that will help the small businesses ensure end-to-end GST compliance without the requirement of a continuous internet connection. To overcome this, taxpayers can opt for ASPs which can integrate with simple book keeping options, as basic as Microsoft Excel. This way, businesses can easily document details of all their transactions. An internet connection will be required for just 5 minutes so that they can upload the excel sheet on the respective ASP’s platform and file their returns. The internet connection will help push the excel data from the ASP to GSTN.

Goods Transport Agencies (GTAs) having trouble providing services to the unregistered persons

In order to help the GTAs in this aspect and ease their GST compliance, the GST council decided that the services provided by a GTA to an unregistered person will be exempt from GST. Furthermore, the implementations of TDS/TCS provisions, e-way bill have also been postponed. The provision of reverse-charge also was resulting in a bias against the small service providers. The proposal to defer reverse charge compliance is also a very important and necessary relaxation as it will benefit small businesses and substantially reduce their compliance costs.

Prior to the recent GST council meeting, the small dealers and manufacturers were required to pay GST on advances received

This was proving to be very burdensome for the businesses in this sector. In order to ease their hardships, the GST council has decided that the taxpayers having an annual aggregate turnover up to Rs 1.5 crores shall not be required to pay GST at the time of receipt of advances on account of supply of goods. The GST on such supplies shall be payable only when the supply of goods is made.

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