There is no denying that MSMEs are the backbone of Indian economy and contribute 29.7% to the Indian GDP. Government reports state that Micro, Small and Medium Enterprises (MSMEs) contribute to almost 50% of Indian exports, and the government plans to increase this contribution in the coming years. The Good and Services Tax, which was introduced in 2017, was a step to improve business conditions for MSMEs. However, much controversy still surrounds this taxation method.
The GST essentially combines all indirect taxes under one umbrella, making it easier for small business owners to avail of business finance at attractive business loan interest rates and redeem tax benefits. After facing some non-compliance issues initially, the GST has transformed the small business experience in India. Here are some of the significant benefits that MSMEs can enjoy, thanks to the introduction of the GST.
One nation, one tax
Earlier, there were around 17 different indirect taxes and levies that a business owner had to comply with. This would result in tiresome documentation and made the business process riddled with confusing steps. GST has streamlined the process and brought all indirect taxes under its aegis. Now business owners can easily pay their taxes as they are merged under one title.
Easy business registration and expansion
The whole country’s business system has been unified under the GST scheme, making it easy for budding entrepreneurs to launch and register their business. Earlier, they would have to comply with the tedious VAT registration process, which was cumbersome and followed different guidelines for every state.
Since the GST is accepted country-wide, business owners can now quickly register a new business, take a business loan and even expand their operations in other states. Essentially, they can easily operate outside the confines of their origin state.
Greater availability of loans
The government’s scheme of providing MSME and SME loans has benefited small business owners even more after the GST tax reform. This is because they can easily apply for a loan through a minimal documentation process by presenting their GST certificate. This automatically fulfils business loan eligibility.
Tax benefits
The total percentage of GST is around 18-22%, which is considerably lower than the earlier rate of 32% of all indirect taxes. Lower taxes result in higher profits. Moreover, documentation related to taxes has also been reduced. GST also benefits the government with tax compliance as it is more transparent than the previous system, and digitisation has led to greater efficiency.
Reduced cost of operations
GST is a unified tax regime, which eliminates the cost of interstate transportation of goods and reduces logistical costs. Hence, business owners can save money and avail of MSME loans much easily if they wish to.
Although the GST faced many controversies at the beginning, it has increased tax compliance and benefitted MSMEs. This tax also favours business owners as it is levied at the point of sale.