How GST Budget Reforms Could Shape the Future of India's MSME The GST reform holds immense potential to bolster India's MSME sector, but its current framework requires critical refinements to address its challenges. The upcoming budget is expected to make major reforms for MSMEs as the backbone of the country.

By Entrepreneur Staff

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

Freepik

The Goods and Services Tax (GST) reform, introduced in India's taxation system, has profoundly impacted the Micro, Small, and Medium Enterprises (MSME) sector. While its benefits include simplified taxation and improved transparency, the challenges it poses are far from negligible. Industry leaders offer critical insights into these challenges and potential solutions.

"MSMEs face significant challenges with stringent compliance norms," notes Dr. H.P. Singh, chairman & MD, Satin Creditcare Network Ltd. He advocates against the requirement to reverse Input Tax Credit (ITC) on unpaid invoices after 180 days that adds undue pressure on small enterprises, particularly those with limited financial resources. This is compounded by the need for technical expertise to navigate the complex filing systems, which often increases operational costs.

Sohrab Bararia, Partner, Grant Thornton Bharat, highlights similar issues, pointing out the difficulty MSMEs face with ITC reconciliation due to mismatches in supplier returns. "This often leads to working capital constraints, further hampering their operations," he explains.

Delayed GST refunds, particularly for exporters, emerge as a recurring theme. "Delays in GST refunds, especially for exporters, have caused cash flow challenges. Many MSMEs rely on consistent liquidity for daily operations, making these delays a significant concern," says Bararia. Dr. Singh also notes the adverse impact of Reverse Charge Mechanism (RCM), which requires cash payments and exacerbates cash flow issues.

Certain industries, such as oil and gas, are notably excluded from the GST framework, creating an uneven playing field. Dr. Kapil Garg, MD, Asian Energy Services Limited emphasizes, "Industries outside the GST framework, like oil and gas, cannot avail input tax credits. This effectively increases costs and discourages adoption of cleaner fuels like natural gas, which should ideally be incentivized."

The multiplicity of GST rates creates confusion and disputes. "Unifying the 12 per cent and 18 per cent slabs would simplify compliance, even if it means minor rate adjustments for some items," suggests Dr. Garg. A uniform rate structure would reduce classification disputes and make it easier for businesses to manage their taxation processes.

Simplifying the filing process is a key expectation for MSMEs. Abhishek Thakkar, CFO, Niyogin Fintech Limited says, "MSMEs look forward to simplifying GST return filings with fewer returns, a single rate structure that prevents disputes over classification, and quicker refunds of input tax credits in the upcoming budget."

Industry expectations

Expanding GST coverage to previously excluded industries could be transformative. "Including natural gas in the GST framework could align with the government's goals of increasing cleaner energy adoption," Dr. Garg advocates. On the other hand, Dr. Singh explains that simplified GST compliance could unlock significant liquidity for MSMEs. He says, "With lower compliance costs and rational interest rates, the financial burden will ease. Time savings and greater administrative efficiency would flow from filing and refund services becoming simpler."

Efforts to rationalize compliance mechanisms could ease the administrative burden on MSMEs. "There is also an expectation for automation support for tax compliance and higher threshold limits for exemption under GST. This would make compliance less cumbersome and ease the ease of doing business, thus stimulating growth in MSMEs.," Thakkar notes.

Accelerating GST refunds for export-oriented MSMEs would not only resolve cash flow issues but also strengthen their role as drivers of the Indian economy. Bararia explains, "Accelerating GST refunds, particularly for export-oriented MSMEs, will alleviate liquidity issues and support their growth. Simplifying the compliance mechanism by introducing a single monthly return for small businesses can reduce the administrative burden and streamline compliances."

The GST reform holds immense potential to bolster India's MSME sector, but its current framework requires critical refinements to address its challenges. The upcoming budget is expected to make major reforms for MSMEs as the backbone of the country.

Entrepreneur Staff

Entrepreneur Staff

Editor

For more than 30 years, Entrepreneur has set the course for success for millions of entrepreneurs and small business owners. We'll teach you the secrets of the winners and give you exactly what you need to lay the groundwork for success.
Growing a Business

The 10 Best Podcasts Every Entrepreneur Should Listen to for Growth, Strategy and Success

Unlock your potential with the 10 must-listen podcasts for entrepreneurs, offering expert insights on growth, strategy and success.

News and Trends

Nikhil Kamath's WTFund Backs 22 Young Entrepreneurs with Grants & Mentorship

WTFund's second cohort, spanning 50+ cities, showcases startups across Tech, D2C, Edtech, Fintech, and more. Tier I drives AI/ML B2B solutions, while Tier II/III focus on vernacular-first B2C innovations.

Growth Strategies

JLR To Ramp Up Production Of Made In India Range Rover & Range Rover Sport; To Focus On SV Variants: Rajan Amba

We are focusing on tailor made limited edition cars, specifically for the Indian market, catering to the high net worth individuals (HNIs), says Rajan Amba, MD, JLR India

Starting a Business

These Married Co-Founders Reveal How '30-Minute' and '$10,000' Rules Helped Set Their Business on Track for $1 Billion

Ankur and Aditi Daga both had family ties to the jewelry business — and their own vision for shaking up the industry in the U.S.