The Goods and Services Tax dominate every discussion on the International Micro, Small and Medium Enterprises Day on Tuesday.
The MSME are expected to benefit from a single window to pay taxes, but the new system poses a few challenges as well. India has more than 3 crore MSME units, contributing half of the country’s industrial output and about 42 percent of exports. The MSME sector is a greater catalyst in Indian economy than the information technology sector.
Read also: Kerala hits the jackpot! GST Council agrees to tax private lotteries at 28%
The MSME stand to benefit from the new GST regime. However, higher taxes on essential commodities in the manufacturing sector will pile inflationary pressure on entrepreneurs, said Damodar Avanoor, Kerala state president of the MSME Association.
The drags
1. The GST creates headwinds for small-scale industries with more than Rs 75 lakh in annual turnover, because they will be put in direct competition with giant companies. They can hardly claim to have the competitiveness of products like their bigger counterparts. Their cost of production will be higher yet they are supposed to pay taxes on a par with the big companies. The GST has slashed the limit of exemption for excise duty from Rs 1.5 crore to Rs 75 lakh.
2. The small-scale entrepreneurs will also be affected by an increase in prices of commodities such as cement. The imposition of 28 percent tax on construction materials will be a setback for them. Manufacturers of cement-based products such as hollow bricks, door frames and window sills will have to spend more on production.
3. The GST naming convention has left the businesses puzzled. Many of the manufacturers are clueless about the ‘Harmonized System of Nomenclature’ code assigned to their products. The onus of making it clear is with the state governments. The codes for rubber, coconut shell and glass are not yet been finalized.
4. The businessmen have to wait until July 1 to understand the full scope of the GST.
5. The filing of tax returns will be confusing in the initial stages.
The boost
1. Small-scale entrepreneurs are expected to benefit from the introduction of input tax credits on industrial purchases. Businesses will find it more profitable to go for input tax credits than compounding by paying 2 percent taxes when buying higher-priced products.
2. More entrepreneurs will be spurred into action with the exemption of businesses with less than Rs 20 lakh in annual turnover from the tax net.
3. The abolition of entry tax will also benefit entrepreneurs. Tile, marble and some other products were prohibitive because of their higher entry taxes. The GST will ensure that these products could be sold anywhere in the country.