The MSME sector has been playing a critical role in our economy in terms of contribution to growth, employment and promoting entrepreneurship. Over the years, post GST introduction, GST council has introduced some significant changes for MSME sector. These include: a) Small traders who will be allowed to sell through online platforms without goods and services tax (GST) registration will be spared the need for a 1% tax to be collected at source, said a person familiar with the fine print of the decision taken earlier this week by the GST Council. Currently, e-commerce operators have to collect tax at 1% while making payments to traders and remit it to the government, b) With the Council’s decision to bring online and offline retailers on a par with respect to GST registration requirements, traders with less than ₹40 lakh sales in goods will not require GST registration for online trading within the state, c) The GST Council also allowed businesses — with turnover up to Rs 1.5 crore registered under the composition scheme — for the intra-state supply of goods and services through ECOs. E-commerce sellers aren’t allowed to opt for the scheme currently. The scheme aims at reducing the compliance cost for the small taxpayers with lower tax rates of 2 per cent of turnover for manufacturers, 1 per cent for traders, and 5 per cent for restaurant businesses.
We have collated some of the expert views on the above decisions. These are set out below. According to Rajan Raje, Chair, MSME Forum, Bombay Chamber of Commerce & Industry and Group CEO, Nichem Solutions, “this is a welcome step for micro enterprises who were struggling with the necessary understanding and infrastructure for GST compliance. They will get some time to understand the benefits of being GST compliant and hence to be competitive,”-
Vidit Aatrey, Meesho Founder & CEO explained that with an estimated five crore MSMEs currently unable to sell online due to compulsory GST requirements, this game-changing measure can be an enabler for millions of small units, including artisans, boutiques and mom-and-pop stores. Such onboarding of the smallest of MSMEs on to e-commerce platforms will yield rich dividends in terms of opening up job and business opportunities to SMEs in remote areas of the country. The unorganized sector, especially in rural and semi-rural parts of the country, will gain immensely from these proposed measures, the source asserted.
Shalini Mathur, Director, Tax and Economic Policy Group, EY India, commented that while bigger businesses have experienced the benefits of GST such as common market, minimization of tax cascading, reduced cost of tax compliance and technology-enabled transparent ta-x structure, the MSMEs have been grappling with several compliances and financial constraints. One of the challenges of MSMEs is invoice-matching for claiming the input tax credit. The following suggestions have been given by Ms. Mathur. These include: a) rationalization of rate of composition scheme to 1% as against three GST rates 1% for traders, 2% for manufacturers and 5% for restaurant service providers, b) to allow small traders to claim monthly provisional refunds as against the present quarterly refunds, c) dispensation of e-way bill procedure for a turnover up to Rs. 1.5 crores.
Some of the suggestions on simplifying GST for MSME sector by the Institute of Cost Accountants of India are: a) reversal of input tax credit, b) clarification relating to the bundle of supply whether it is a composite supply or a principal supply, c) payment and return should be interlinked, d) maximum ceilings should be reduced to Rs. 10 crores from Rs. 25 crores.
In addition to the suggestions given above regarding GST, it is worth taking note of RBI Governor’s remarks. In his address at ASSOCHAM (March 6, 2020) he has mentioned that MSMEs are becoming globally competitive and their products are being accepted overseas. In this background, special attention needs to be given to improve the competitiveness, technology upgradation endeavors.