How the new GST regime will impact Indian SMBs

All Indian enterprises—big or small—contribute substantially to the nation’s economic growth. Given their pan-India presence, the large percentage of small and medium businesses (SMBs) in India are robust contributors to the country’s GDP growth. 

Thus, the government—supportive of the sector—has introduced several initiatives to empower them. 

We believe the new Goods and Services Tax (GST) regime has created a fresh round of challenges for SMBs, although it does not adversely affect large companies with financial wherewithal. 

Of specific concern is the latest GST rates that came into effect on July 18, 2022, announced its launch in June by the GST Council. 

Under the new GST regulations, the entire taxation process becomes simpler for SMBs. Nonetheless, the challenges of transitioning to online methods and getting used to the new tax regime in a short time loom large. 

In fact, extending e-invoicing support is challenging for SMBs, especially in semi-urban and rural areas due to a lack of required training, resources, and IT support. 

ALSO READ

How small businesses can shape India’s economic recovery

E-invoicing system posing difficulties for SMBs

Technological difficulties serve as one of the major challenges for SMBs under the GST. The transition to e-invoicing support primarily affects businesses not well-versed in handling the GST mechanism online. 

Especially in semi-urban and rural areas, business owners are unaware of the practical details of filing GST online and outsource it to third parties. 

A lack of proper IT infrastructure and resources like uninterrupted broadband services in rural areas is a major challenge for SMBs, adding extra costs to registration and filing for SMBs.

Labelled food items get more expensive under GST

Consider the GST imposition on daily grocery products, where consumers will now pay a 5% tax on pre-packed, labelled food items, including atta, curd, and paneer up to 25 kg. 

This is bound to increase kitchen expenses and stretch the budgets of most Indian households. The rate rise in commodities—ranging from milk products, edible oils, tetra packs, kitchen utensils, and more—will also burden the common man, and it will raise the pressure on the margins of small shops and retailers. 

The growing burden of periodic changes in GST for SMBs

The main reason to introduce GST was to eliminate issues emanating from cascading taxation. 

Accordingly, measures for streamlining and simplifying the GST regime are imperative as many manufacturers and suppliers still struggle to cope with periodic changes in the tax slabs ever since it was introduced.  

As Indian companies need to support the country in its effort to augment employment opportunities, the challenges posed by the GST regime should be addressed quickly rather than treated as a work in progress every year. 

The authorities have their compulsions in eliminating loopholes suppliers and manufacturers are using to claim exemptions from GST via un-labelled products. 

Nonetheless, those who seek to dodge taxes will still find a way around the 25 kg restriction. Countrywide, the masses will, however, bear the brunt of the GST burden on daily essentials. 

Therefore, the government needs to offer some relief for the masses since high inflation and surging food and energy prices have hit the average household spending capacity quite hard. 

ALSO READ

Explainer: Know everything about B2B and B2C e-invoicing

Access to healthcare gets more expensive

Equally surprising is the 5% GST imposed on hospital room rents, excluding ICU, above Rs 5,000 per day per patient without any input tax credit. 

Healthcare services, brought under the ambit of GST in this manner, are an unwanted development as accessibility, availability, and affordability of quality medical care continue to be a major pain point for people. 

This will further inflate the rates for treatment at private hospitals, which already have a reputation of being out of reach for most families. 

To address the decades-long problem of inadequate healthcare access, one expects these facilities to be made more accessible and affordable for all sections of society.