1) Manufacturer woes – One of the major negative impact of GST on Startups and SMEs is the reduction in duty limits. As per the present tax regime, any manufacturer having a gross turnover of less than Rs. 1.50 crores are not required to pay any duty whereas, after GST rollout, this limit of exemption will be decreased to Rs. 20 lakhs.
As a result of this, a lot of startups and small businesses will come under the GST tax radar.
2) Production slowdown – The uncertainty of the tax compliances and transition in the initial stages of GST rollout could affect the supply chain and thus affect the profitability of the Startups and SMEs.
Another situation that could affect the profitability of Startups and SMEs is when the existing inventory is being sold at lesser prices before the GST rollout so as to prevent the stock from being stuck during the transition period.
3) Non-compliance – The small and medium enterprises might have to bear the burden of non-compliance by their unorganized sector i.e the suppliers. They might have to bear the additional brunt of input tax credit cost.
4) Cost of compliance – Under the GST regime, every taxpayer has to file a minimum of 37 returns in a financial year. This would result in adding up the costs for SMEs as they would need to deploy more resources in order to be compliant with the various tax laws and processes.
5) Selective tax levying – GST will not be applicable to Alcoholic liquor for human consumption and Petroleum based businesses, which creates a further gap and does not support the ‘unified market’ ideology of GST.
All in all, it’s too early to speculate and confirm the above-mentioned impacts of GST on startups and SMEs. Any major change in law and processes will need some time to adjust and normalize. Overall it’s being expected that the positive aspects of the GST regime will offset the negative ones in the long run.
The GST is a radical move. It will influence each individual from the general public and the business world. The littlest change in the expense affix prompts a domino impact, influencing the whole structure from the top to the base. Organizations, especially new companies, need to support for the evolving administration. They should know which charges to pay, how the taxes apply, the quantum of the assessments and the methods for figuring.
Overall, GST will be a blessing for business start ups and various other sectors. It is expected to be huge savings for logistics, manufacturing and retail companies. However, certain other sectors dealing with luxury products like cars, tobacco products etc. will face higher tax rates between 27% – 40%.
Hence, GST remains to be the friendliest tax reform in India creating transparency, efficiency, and more growth.