GST-related complications the biggest hurdle for MSMEs now: ISF President

The Forum for Internet Retailers, Sellers, and Traders (FIRST) India organised a round table discussion on May 29 to discuss the challenges faced by small businesses during the two-month-long nationwide initiative led by Central and State Tax administrations to detect and eliminate fraudulent Goods and Services Tax Identification Numbers (GSTINs).

The discussion was attended by Vinod Kumar (President, India SME Forum (ISF)), Prahlad Kakar (Chairman, ISF), industry experts, tax experts, GST officials, and sellers, who aimed to address these issues.

At present, the jurisdictional officers have the authority to suspend the licenses of MSMEs, and the constant threat of cancellations of registrations and inspection has raised concerns for genuine sellers who have registered their businesses using Virtual Places of Business (VPOBs).

By assessing the ramifications of the GST officials' raids, FIRST India presented key five recommendations: 

1. Establish a robust procedure that enables genuine entities to present their case and provide the necessary documentation, reducing the compliance burden they face.
2. Offer comprehensive knowledge to tax officers at the grassroots level regarding existing provisions and judicial precedents, safeguarding the interests of genuine businesses.
3. Ensure transparent investigations for taxpayers and MSMEs identified during the drive.
4. Establish a prompt redressal mechanism to resolve cases concerning genuine businesses, as delays can lead to significant financial implications.
5. Accelerate the process of remediation to proactively mitigate operational disruptions and support uninterrupted growth.

Due to the requirement of GST registration in each state, MSMEs use shared warehouses and co-working spaces as their registered addresses. “Insisting for records to be kept at all such locations and absence of proprietors on site is interpreted as non-compliance, leading to the cancellation of their licenses,” said Vinod Kumar, Trustee and President, FIRST India.

The lack of understanding of the legal and technical terminologies among these entrepreneurs complicates the matter further. “Earlier, access to finance was seen as the biggest hurdle for MSMEs, but now it is becoming GST-related complications,” he added.

Despite the efforts made by ISF to convince MSMEs of the importance of consolidating their accounts after GST to unlock better access to finance and credit support, they “revert back to cash-based/multiple enterprises to stay under the GST limits,” said Kakar.

Although the presence of fraudulent registrations must be tackled, the panel emphasised the necessity to support the growth of genuine MSMEs in India, which face unique issues. This can be attained with the “collaborative efforts of the government, tax authorities, and industry stakeholders,” the group said.