GST’s impact on small and medium-size business enterprises


Goods and Services Tax (GST) was on the anvil for the past many years and 1-July 2017 finally saw India shift to the new taxation regime. GST will bring more than 5 million small businesses, majority of which were operating offline, into the digital ecosystem. It has the potential of becoming something much bigger than just a one-sided tax system. This digital tax system has the ability to help Small and medium-size business enterprises (SMEs) take advantage of their data for easier access to credit, operational efficiencies, managing cash flows, managing better customer relationships and thus becoming the operating system for Indian SMEs.

The GST Network

The GST Network (GSTN) is the technology backbone of GST and its ecosystem consists of three major players, ASPs (Application service providers), GSPs (GST Suvidha Providers) and the GSTN portal. A taxpayer has the option of directly accessing the GSTN portal or they may use third party applications (ASPs/GSPs) which in turn will connect via secure APIs with the GSTN system. Accessing the portal via ASP/GSP is a better option as these applications are much more user friendly and customer focused. GSPs and ASPs are providing the much needed support to the GST network. While GSPs are primarily limited to providing enhanced access to GSTN, ASPs are addressing most taxpayers’ compliance troubles.

Credit goes to GSTN for building the taxation system as an open API-based platform. APIs will act as building blocks which the ecosystem partners will use to develop innovative products and solutions. An inherent characteristic of an open platform is its network effect. The more suppliers (developers) you have on the platform creating apps and delivering innovation for the consumers, the more consumers will the platform attract.

The ASPs and GSPs should also be looking to leverage the network effects of the ecosystem and go for an open platform approach. In the API economy, the biggest companies will be the ones which open the door to third parties and make it possible for third party sellers to sell to their customers. For example, Quickbooks, a US based financial management, accounting and tax software for SMEs, turned itself into an open platform. It opened up its APIs and introduced a developer program to allow third parties to build and sell software products to Quickbooks’ customer base. These products use customer financial and tax data provided by Quickbooks. A service called Quickbooks financing also enables customers to directly apply to third party institutions for loans. Quickbooks could have easily sold this data to outside institutions and earned money, but that would not have made it an open platform.

SMEs are vital for the economic growth and competitiveness of the country. But absence of digitised data has forced them to face a lot of challenges, including paucity of bank credit, operational inefficiencies, poor customer service and trouble in scalability.

Here is how the GSTN ecosystem has the potential of transforming the complete end-to-end operations of SMEs and becoming the operating system for Indian SMEs.

  • Digitising dataBiggest challenge SMEs face is related to paucity of bank credit. Since there is absence of authentic information on SMEs, there is a high underwriting and transaction cost associated with lending to SMEs. With GST, there will be trustworthy digitised information on small businesses and a significant opportunity for startups to enter in the ecosystem and leverage that data. Fintech startups using big data analytics to analyse small businesses for loan approvals can enormously reduce the risks in lending and cut down operational costs. Indian startup ecosystem has a lot of players which are easing the SME lending process. CoinTribe and Flexiloans are two examples of innovative startups which are presently using data analytics for providing quick loans to SMEs. The GSTN ecosystem will see many more such players becoming a part of this new system. With the help of trustworthy GST data and their predictive analytics platforms, fintechs will be able to take decisions on loan approvals/rejections within minutes.
  • Analysing dataSMEs face a tough time in analysing heaps of data such as sales records, purchase records etc. Since their data is offline or in silos, SMEs lack the visibility of having a single dashboard and hence face problems in accessing and analysing business data. The GSTN ecosystem will act as a central repository for all their sales/purchase data. Data analytics companies will be able to make sense of that data and create dashboards for easier visualisation of trends. Geektree is an India based Machine Learning enabled, search driven, self-service analytics tool. Questions related to data can be directed to the tool in the form of everyday communication and it responds with the desired data in a graphical form. More such innovative startups will become a part of the GSTN ecosystem and help SMEs make better business decisions.
  • Serving customersSMEs currently face huge challenges in serving their customers. Data analytics firms analysing SME’s sales data can help establish their profitable customers and their habits. This will allow SMEs to offer personalised service inspiring loyalty and increasing sales.
  • Predicting analyticsWhile big businesses with the help of the resources at their disposal are able to predict sales and inventory trends and plan accordingly, SMEs have not been able to successfully do the same. Digital sales and inventory data combined with predictive analytics participants of the GST ecosystem will be able to assist SMEs in identifying sales trends and predicting inventory needs.

Currently, SMEs are concerned about tax compliance in this new environment and the ones which were working offline are facing hiccups and will continue to do so for a few more months. SMEs, apart from needing a tax expert, will now have to invest in some taxation technology. They will have to move away from their comfortable paper based systems to digitised ones. Constant delays from GSTN are not helping with the transition. APIs are being released in a staggered manner because of which most GSPs and ASPs are still not ready. Excel based offline utility tool has been introduced as an alternative. Presently, the focus has shifted from a platform based approach to the immediate priority which is ‘tax collection’. However, once the platform stabilises in a few months, ASPs and GSPs will smoothen the compliance process and bring in innovative functionalities. There is no doubt that GST will reduce the taxation complexity for SMEs and bring them at a level playing field with big businesses, but their competitiveness will actually enhance when an open API based approach combined with big data analytics completely revolutionises the entire SME landscape.

(Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the views of YourStory.)



Updates from around the world