A unified market and a simpler tax system are proven to boost operational efficiency, particularly for MSMEs with a greater reach. In July 2017, India’s paradigm change to the Goods and Services Tax (GST) system would increase their compliance costs and, for the first time, ensnare the bulk of businesses in the indirect tax net.

How GST works

• The Goods and Services Tax (GST) introduced in 2017 is levied on value added during the supply of goods and services in the economy.
• It has replaced multiple indirect taxes providing for a unified system of indirect tax compliance and has reduced the cascading of taxes.
• It has helped create a national market, or as some have remarked – it was India signing a free trade deal with itself.

How it has positively impacted MSME

• Unlike its predecessors, GST is tech-driven where the taxpayer interfaces with the state through a common portal. All processes from the first step of registration to filing, payments and claiming refunds is online. This has contributed to the overall ease of doing business in India and simplified taxpayer compliance.
• GST being transparent and of a self-policing character, it marks the reduction of Inspector Raj if not quite the end to be sure.
• Earlier, medium/small/micro enterprises (MSMEs) had to undergo more compliances with a concomitant heavier cost burden. State had different VAT laws/rates, and trading across states involved the cumbersome CST law in a largely manual mode and answering to different authorities.
• Now more MSMEs are moving into the formal economy thanks in part due to the GST reform.
• Under the automated IGST route, the shipping bill itself is deemed as a refund claim and the refund is disbursed immediately on filing the relevant GST returns.

Issues

• Because of predicted increased tax rates, the GST will have a modestly negative impact.
• Given the emphasis on digitalisation and reduced tax rates under GST, organised players would gain and see moderate growth.
• In an already crowded and price-sensitive sector with a significant number of unorganised firms, a single market would increase competition.
• Profit margins will be maintained or improved for organised players who can keep their price lines or pass on any cost increases to clients.
• Unorganized firms who primarily serve the non-OEM (original equipment manufacturer) replacement market will be pushed to enter the organised realm.

MSMEs play a crucial role in the employment generation, and contribute significantly to overall economic activity, despite which the contribution faces several bottlenecks inhibiting them from achieving their full potential.

https://www.thehindubusinessline.com/opinion/gst-big-gains-for-small-firms/article65244018.ece

How to structure

1. Give an intro about the MSME sector
2. Explain how the taxation system has changed after GST and how it has impacted MSME
3. Give both sides of the argument- where it has positively impacted and where it has not
4. Suggest further measures
5. Conclude