Benefits of GST for Small Business

February 9, 2020
Harshna Paroha

Hailed as one of the biggest tax reforms of the country, the Goods and Services Tax (GST) subsumes many indirect taxes which were imposed by Centre and State such as excise, VAT, and service tax. Although GST was one of the many undertakings by the government expected to stimulate India’s economic growth, let keep the regulations of GST in mind and look at how your business can benefit from this new tax regime.

Benefits of GST on MSMEs

Simplified tax filing: The implementation of GST has replaced as many as 17 levies and numerous cesses, making tax filing simpler, systematic, and more streamlined for you as a small business owner. Furthermore, simplifying the tax filing process will also reduce the need for you to dedicate additional manpower to this process, allowing you to channelize manpower and other resources towards business growth and development.

Credit acquisition increased: Following the implementation of GST, bank credit to MSMEs shot up by 3.7%. Further, the Dun & Bradstreet CFO Optimism Index, Q4 2017, indicates that the percentage of CFOs cited the need for raising short-term funds stood at a six-quarter high during the July-September 2017 quarter. The transparency in accounting procedures has made business cycles more flexible, reducing the cost of borrowing. Additionally, the benefits of being apart of a formal economy and banking system have opened up credit lines you can benefit from to grow your business. 

Manage the business better: Before GST was implemented, SMEs channelized most of their resources towards tallying books of accounts and filing taxes. With GST, however, you are required to check your books regularly. Through this, you will be able to identify defaulters, ensure faster payments and streamline your ledgers. 

Improvement in competition and market expansion: Although GST was implemented to broaden the taxpayer base putting the burden of GST compliance and additional cost on small business, in the long run, GST will create a level playing field for you in the market. This will create an opportunity for you to compete with larger enterprises, expand your customer reach and grow your business. Additionally, GST requires that you simply complete and submit an online form to obtain a GSTIN (GST Identification Number) only once. What this means is that you don’t have to register for VAT with each state if you want to carry out your business there, making expansion a lot easier. Launching a new business, and subsequently expanding it, will be comparatively easier under the GST regime, without worrying about complex taxes applicable in different states.

Reduced cost of logistics: GST comes as a boon for the logistics department of small businesses. GST replaced the current Central Sales Tax (CST) with IGST,  a combination of CGST and SGST. This means you will not have to deal with border and check-post taxes causing delays in inter-state transportation. This will reduce your transportation cost significantly, increase inter-state business, facilitate faster movement of goods, and reduce your maintenance costs.

Let’s look at an example of a product journey before and after GST, to understand the benefits of GST on your business.

Product Journey before GST

Before GST – When the VAT rate was different for different states 

From the above example, it’s clear that the seller loses money to tax at each stage. This also makes it difficult to claim ITC (input tax credit). 

After GST was implied assuming the GST to be10% for Product A throughout its journey. 

Product Journey After GST

From this example, with the implementation of GST, one can see that although there is not a lot of difference in the amount paid by the end customers, there is an unrestricted flow of ITC (input tax credits) because of GST. This allows sellers, manufacturers and traders to easily avail a refund on the ITC levied at the time of sale. As a small business owner, you can choose to further reduce the selling price of your product giving you an edge over competition in the market.

GST is expected to have a positive impact on SMEs in the long run. By complying to the GST reforms, you can use this new tax regime to your advantage to expand and digitize your business and be more competitive in the market. Additionally, you can also consider using mobile apps to help you be more compliant with GST and additionally help with digitization. Apps like Floprofit, will not only help you view your accounting data on your mobile but will also help you send GST compliant invoices to your customers, manage your stock, track expenses and manage your supplier efficiently with real-time. With GST comes digitalization for your business, making it vital for you to take this opportunity to make your business tech-savvy and reap the benefits of this new tax regime.  

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