It has been a little more than two years since GST has been passed by the legislature to be implemented. Its aim was simple, to help all sections of society in the country pay lower taxes in the future, and to bring in transparency in the tax system.
Of all the sections of the country which were affected by the GST economy, small businesses faced quite a lot of changes in their tax payment patterns, changes both good and bad. The question that finally stays is whether GST has made everything good for small businesses.
The Lows They Faced Owing To GST
One year into the GST economy, the small businesses started getting the huge blow of the GST. There were several reports of small businesses losing almost 60% of their sales. After all, when a machine worth a lakh had a tax of Rs. 18,000 levied on it, wouldn’t the buyers rather spend their money in the brand stores which they already trust, than smaller shops?
Earlier during the days of disintegrated taxes, small businesses were not required to pay taxes. Sales were quite high. Profits could be made easier. VAT ranged between 5% and 12.5%. A year into the GST economy, GST was as high as 28%. It was clear that these businesses were going to suffer.
Apart from a sharp decline in sales, the owners of small businesses had found registering themselves for GST to be a very complex method and hence, they had needed to hire professionals to do it for them.
The implementation of GST had also led to a disparity between small and organized industries regarding the ease of paying taxes. It was clear that the organized industries had been well equipped to pay the taxes. For them, it was nothing but a minute increase in the huge taxes that they were already paying. However, for the small industries, the GST back then was a huge blow.
These drawbacks had pushed a lot of businesspersons to switch over to trading and imports since even the smallest of businesspersons had to pay at least 18% tax, which was huge.
The Relief That Came After
It will be wrong to state that the woes of small businesses went unheard. Soon enough, the government finalized that the turnover threshold for registration of GST should be 20 lakhs for businesses in all states of the country, 10 lakhs for states under the Special Category. Then there came further relief. In early 2019, GST was slightly reformed to bring relief to small businesses. The government has stated that small businesses with turnovers up to 40 lakhs do not need to register for GST. Some northeastern states and some hilly states now have a threshold of 20 lakhs for registration of GST.
However, the service providers haven’t seen a change in limits for registration. The threshold remains to be at Rs. 20 lakhs, and 10 lakhs for states falling under the Special Category.
Owing to this reform, around 20 lakh businesses are going to benefit from it.
A big part of this reform is that the individual states have now got the freedom to change the thresholds. For that, the Council Secretariat should be informed within a week, and that it will be a one-time concession. Considering the amount of power the state legislatures get due to this reform, there is room for more advantages to small businesses.
There is a scheme for service providers, too. Service providers, including mixed service providers like plumbers and electricians, with an annual turnover of up to Rs.50 lakhs, can partake in a composition scheme of only 6%. The composition limit for manufacturers, traders and restaurants have been brought up from 1 crore to 1.5 crores, which will help those sectors as well.
Apart from these, a final decision taken is that the businesses located in Kerala will be getting flood relief in the form of cess of up to 1% on intra-state sales for a maximum of two years.
The Ultimate Loss Of Small Businesses?
While there have been huge concessions in recent times for small businesses, there is still a section of small businesses that are suffering due to the implementation of GST. For some, the working capital requirement has increased by a wide margin. For others, there has been a huge loss of sales. And yet others have to now pay taxes when earlier taxes were not imposed on them.
Industries like textile were not taxed in some parts of the country in the earlier tax regime, but now small textile industries are heavily burdened by them.
While we find that there were various reforms with the aim of helping small businesses flourish, we also find that small businesses have suffered and continue to suffer on account of GST. And different segments of small businesses have been affected differently, depending on their annual turnover, capital availability, legal knowledge regarding taxes, and the industries that they are a part of.
What can be agreed on is the fact that there needs to be further initiation to improve the conditions of small businesses for the betterment of the economy of the country.