Not A Breeze

SMEs, not used to complex paperwork and laws, will have to reinvent themselves if they have to survive under the GST regime.

- Dipak Mondal

Vijay Prakash Jain, 75, a trader and national general secretary of a traders’ association, the Bhartiya Udyog Vyapar Mandal, has not let his physical frailties weaken his resolve to fight for traders. Jain, who trades in groceries, chemicals and dry fruit, and also runs a travel and tourism business from the narrow lanes of Daryaganj in old Delhi, is gearing up for another battle – adapting to the Goods and Services Tax or GST. GST provisions, he says, are so complex that even though all the processes are online, he will not be able to file returns on his own. He will have to hire a chartered accountant. “Our compliance cost rose during the shift from sales tax to VAT (value-added tax). Now that we are going from VAT to GST, it will go up again,” he says.

Like Jain, many small traders and owners of micro, small and medium enterprises, or MSMEs, are facing the uphill task of preparing for the new GST system that will come into force from July 1. This is being called one of the biggest tax reforms that will make businesses stronger and tax administration & compliance easier. It will also plug indirect tax leakages by bringing into the formal economy a large part of the informal sector, including small traders and many MSMEs. However, for MSMEs and small businesses, adjusting to the system will involve huge costs (see Challenges Ahead). They may even lose business, as the new system of seamless input credit encourages companies to do business with players whose compliance record is perfect or at least near perfect. The system has been designed in such a way that unless the records submitted by all the parties in the supply chain match, no party will be able to claim input credit. For now, though, this is not the biggest headache for MSMEs.

The Problems