Answer 2 - GST and Taxation for MSMEs , While not

everything went according to plan, there is no doubt

that GST ultimately is suitable for SMEs. The impact
of GST on different sectors of the economy has
become a never ending debate.
GST and Taxation for MSMEs - The Goods and
Services Tax [GST] was rolled out on July 1, 2017, to
simplify the existing tax regime, widen the tax base,
and increase the government’s tax revenues. It was
implemented with a hope that it would eliminate the
system of double taxation that was in place earlier. It
is being estimated that there are almost 5 crore small
and medium enterprises [SME] that are responsible
to form the backbone of the Indian economy and
contribute to 50 per cent of the industrial output and
around 42 per cent of export earnings. SME had to
adapt to the new tax regime. Considerable steps had
to be taken by SMEs to become GST ready. SMEs
were told that changing to the GST system would
eventually prove beneficial. With a GST system in
place, tax evasion would become much harder and
scrupulous businesses would be rewarded by tax
credit inputs.
While not everything went according to plan, there is
no doubt that ultimately the GST is suitable for SMEs.
The impact of GST on different sectors of the
economy has become a never-ending debate. It is
difficult to comprehend and speculate, but it is
known that it is a mixed bag of opportunities and
challenges, especially for SMEs. Few reasons why it is
so are mentioned below.
Fosters an Atmosphere of Trust
In most developed countries, the ratio of the direct
to indirect tax collected by the government is
considerably larger than it is in the developing
countries. Governments in developed countries
collect the majority of their tax directly. On the
contrary, in the developing countries, the
government collects the majority of their taxes
indirectly when consumers purchase goods.
The GST brings most of the indirect taxes under one
roof, which adds transparency. With greater control,
trust between companies has grown. As a result,
business practices are much smoother.
Starting a Business Becomes Easier
Another advantage of GST for SMEs is that it makes
starting a business much more manageable. Under
the old tax regime, aspiring entrepreneurs who
wanted to start a small business had to get a Value
Added Tax [VAT] registration. While this seems
simple, it was anything but because rules governing
GSTs predecessor, the VAT differed from state to
state. Besides processes varying from state to state,
the process of getting a VAT registration was very
cumbersome. To get a VAT required going to many
government offices and meeting with many officials.
Graft played a big part in getting a VAT registration.
Since GSTs rolled out the process of starting a
business has become very smooth. Those who want
to start a new business need to only register for a
GST. As the process of registration is centralised,
getting a GST number takes a fraction of the time
that it took to get a VAT.
Businesses Pay Less Tax under GST
A considerable advantage of the GST regime is that
companies pay much less tax than they paid under
the VAT. In addition to eliminating the system of
double taxation, the GST system eliminates the
multiple state and central taxes businesses had to
pay. Previously, companies had to pay as much as 32
per cent in taxes. Under the GSTs system, they pay
just between 18 - 22 per cent. Furthermore,
businesses don’t have to pay taxes to several
different departments. Hence the tax filing process
has become much more straightforward for small
businesses.
More Businesses are Tax Exempt
A considerable advantage of the GST mechanism is
that businesses that only earn up to Rs 1 0 lakhs
annually do not need to file a GST return. Under the
older tax system, every company that made more
than Rs 5 lakhs had to file a tax return. Under the
new GST system, however, more small businesses
are exempted from paying tax. Such exemptions are
good for the economy because it increases the
incentive for aspiring entrepreneurs to establish
businesses. A simplified registration process and a
friendlier tax policy make the GST system a
significant enabler of SMEs.
Easier Compliance
With a GST system in place, compliance becomes
much easier for SMEs. The GST eliminates challenges
and bottlenecks that regularly occurred under the old
tax regime. Greater transparency under GST makes
more people want to try their hand at
entrepreneurship. The incentive to start a business
has grown immeasurably since the introduction of
the Goods and Services Tax. Entrepreneurs who
commence a business today have a much easier time
getting their venture off the ground. They also stand
to gain much more financially by starting their
enterprise
Conclusion
Unarguably, GST rollout will open up a can of worms
and the impact on SMEs across various industries will
vary greatly. It is quite natural for a pervasive,
country-wide tax reform, as GST is, to have a mixed
opinion. Furthermore, the revolutionary tax regime
will have acceptance that will vary from state to
state. Overall, the new tax proposals under GST will
have a mixed verdict. In essence, the GST’s effect on
the entire Indian economy will have to be scrutinized
in totality to reach a widely accepted conclusion.