Clipped from: https://taxguru.in/goods-and-service-tax/gst-transformed-small-businesses-india-benefits-challenges-reality.html
Think of the small businesses that dot India’s landscape-the corner kirana store, the tailor down the road, the family restaurant. They form the engine room of the country’s economy. When the Goods and Services Tax, or GST, debuted in 2017, it wasn’t merely a tweak but an overhaul of the tax regime. The idea was straightforward enough: “One Nation, One Tax.”
For these small entrepreneurs, GST has been a classic two-sided coin-a huge step forward in some ways and a confusing, messy hurdle in others.
The Good News: How GST Helps the Little Guy
Before GST, being a small business owner was a tax juggling act. One had to juggle the confusing mess of different VATs, Service Taxes, Excise Duties, and Entry Taxes, each different mostly in every state. It used to be more of an administrative headache rather than something one had to actually run a business.
GST swept all that away and brought three massive wins:
1. Stop the Tax-on-Tax: This is the most brilliant part. Earlier, one paid a tax, and then the next business paid more tax on the full price, including the first tax-it’s called cascading taxes. GST introduced Input Tax Credit, which means businesses only pay tax on the value they add. This directly lowers costs, making their products cheaper and competitive.
2. The Relief Scheme: Knowing fully well that a small shopkeeper cannot afford to appoint a full-time accountant, this Composition Scheme is a lifesaver for businesses with lower turnovers. You pay a minimal, fixed percentage of your turnover and avoid complex invoicing and monthly filings. It’s the express lane for taxes.
3. A Digital Push: Everything under GST—registration, returns, payments—is done online. Though tough initially, this helped force millions of small businesses to go digital. They are now better organized, maintain proper verifiable records, and hence find it easier to get bank loans or funds for expansion.
The Challenges: Where the System Hits a Snag
Even with all those benefits, transition to the GST has been anything but smooth. The pressure has been on small businesses:
- The Compliance Headache: Simplified as they might be, the processes for return filings, uploading of invoices, and maintaining digital records are a huge demand on any business run by two people. Missing a deadline brings with it penalties-a crippling effect if a business has a tight budget. Most have to hire an accountant, a GST Practitioner, which is an added operating cost.
Ever Changing Rules: Because every now and then, GST Council meets, and as often, changes in tax rates or rules or filing formats are notified. For a small business owner, this is all quite confusing and exhausting. Just when they are getting used to the old system, another new order is announced.
- The Cash Flow Crunch: For small businesses, particularly exporters, timely refunds of taxes are crucial. A delay in refunds by the government can completely freeze their working capital and make it hard to pay for suppliers or staff.
The Long-Term Verdict: Organized Growth
The bottom line is that GST is a mixed bag right now.
It’s nudging the Indian economy toward formalization-moving businesses from the informal to the formal sector. This formalization is key to achieving sustainable, long-term growth. In short:
- Pre-GST: A tangled web of taxes, very expensive, with many loopholes.
- With GST: A cleaner, low-cost system, but the administrative learning curve is very high.
For the small entrepreneur, GST is a painful transition and a huge opportunity to become more efficient, organized, and ready to compete on a national stage. The system still needs more refinement and simplification to truly become the small-business friend it was meant to be.
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