GST Impact GST Impact

Impact of GST on MSME Impact of GST on MSME

Impact of GST on MSME

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Goods and Service Tax (GST) combines both the current Central and State Taxes in the country into a solitary tax, thereby eliminating the dual taxation system and enabling a joint nationwide market. The implementation of this tax allows the government to have an improved hold on the taxpayers, which, in turn, improves the complete tax scheme and has several other benefits.

This MSME sector of the market has been deliberated as the chief development driver of the Indian economy for years. SMEs have emerged as the principal employment-creating segment in India and have delivered stable growth through various sectors of our developing nation. The impact of GST on MSME has been tremendous.

Impact of GST on MSME

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For Micro, Small, and Medium Enterprises (MSME), the business proprietors and producers are required to pay various different taxes as per the laws and so, fulfilling all the tax-related documentations has them running to different departments. Without GST, these entrepreneurs faced harassment from the various departments they had to report to file their taxes.

Impact of GST on MSME

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With the implementation of GST, they do not have to file those taxes manually to different departments, but instead easily pay them all online. This reduces the chances of harassment and increasing their benefits.

Another impact of GST on SMEs is that the business owners only have to pay a tax of 18-22 percent as compared to the combined taxes of 32% before GST.

As the nation has progressed and moved to accept GST, so did the MSMEs. But the effect of GST on Small and Medium Enterprises has two sides to it– positive as well as negative. Let’s have a look at both of these aspects in a little more detail.

Also Read: Impact of GST on IT Sector

Positive Impact of GST on MSMEs

  • Low Rates Taxes
    With the application of GST, industries having a turnover between Rs.10 and 50 lakh have to pay levies at lower rates, thereby, getting an enormous relief from tax burdens.
  • Reduction in Logistics Cost and Time
    GST enactment reduced time and money required for Interstate movement as their duties got eliminated. Also, this diminishes costs of retaining large stocks due to ease in free movement of goods.
  • Creating a Uniform Platform
    GST levies taxes on stock transmissions and neutralizes the impact of contributed taxes through the input credit too, thus, removing all tax differentiation and bringing small and medium businesses to par with large-scale industries.
  • Increased Reach to Customers
    Presently, the Central Sales Tax (CST) on sales between states restricts small and medium businesses to reach their potential customers across India, which surges the acquisition charge of products for the consumers. The implementation of GST will prevent that.

Negative Impact of GST on MSMEs

  • Burden of Lower Threshold
    GST bill has improved the threshold limit from 10 lakh to 20 lakh generally and from 4 lakh to 10 lakh for North-eastern states, due to which any service provider or retailer is subject to the tax levy. Earlier, the central expunge threshold was INR 1.5 crore. Now, as the threshold is low, most MSMEs have to pay a lump sum of their investment towards tax in the near, foreseeable future.
  • Lack of Tax Differentiation for Luxury Items and Services
    The GST implementation has the function of tax neutrality, which though beneficial in other areas, does not differentiate between luxury and normal items and services. Unlike earlier, when the state and central government levied greater duties on luxury goods and services, the GST tax requires all goods and services to have the same tax. This leads to an increase in the financial gap between the rich and the poor and is not a model situation for MSMEs to compete and flourish against large industries.
  • Selective Tax Levying
    GST tax is not applicable to alcoholic liquor for human consumption as well as petroleum and oil based industries, which is a contradiction of the policy of the 'unified market' philosophy of GST.
  • Extra Operational Capital Requirement
    Taxes on stock transmission primarily affect the functioning capital necessities. This, in fact, varies with factors such as stock reversal time at depository, credit sequence to the consumer, etc. A greater sum of Capital Prerequisites increases the interest charge, which finally increases the rate of Completed Merchandises.


Although the GST implementation aims to upsurge the taxpayer base, largely SMEs into its opportunity, it presents a problem of compliance and related charges for them.

Nevertheless, GST will make the MSMEs more competitive in the long run and will make the playing arena level between big enterprises and them. Additionally, the Indian MSMEs would be able to compete with the international market goods and competition coming from cheap price epicentres such as China, Philippines, and Bangladesh and actually thrive in the world market scenario.

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