Impact of Goods and Service Tax (GST) on Micro, Small and Medium Enterprises (MSMEs)

GST also known as the Goods and Services Tax is an indirect tax structure designed to support and enhances the economic growth of a country. GST is one of the biggest tax reforms in India after independence. Under GST a uniform taxation system implied to all over the country. It combines various other taxes such as state and local tax, entertainment tax, excise duty, surcharges, octroi and others. The tax is applicable on transaction value which includes packaging, commission and other expenses incurred during sales. It allows full tax credit from inputs and capital goods on procurement which can later be set off against the GST output liability. MSME sector of India is considered as the backbone of economy contributing to 45% of the industrial output, 40% of India's exports, employing 60 million people, create 1.3 million jobs every year and produce more than 8000 quality products for the Indian and international markets. There are approximately 30 million MSMEs in India and the sector is growing at a rate of 8% per year. GST enables a centralized registration that will make starting a business easier and the consequent expansion an added advantage for MSMEs. Under the GST bill, no entry tax will be charged for goods manufactured or sold in any part of India. As per the current tax structure, businesses with a turnover of more than rupees five lakh need to pay a VAT registration fee but, the government raises the exemption limit under GST to twenty five lakh giving relief to over 60% of small dealers and traders. GST ensures that there is no ambiguity between goods and services. At the same time GST lead to an increase in the cost of the products for businesses that supply directly to end users.