The goods and services tax is an indirect tax levied on customers on purchasing goods and services. Its recent implementation has transformed the indirect taxation system. By replacing the old sales tax and VAT system, the GST regime it's easier to understand the framework by bringing all indirect taxes under a single category. To ensure that businesses and consumers across the country are benefitted, the GST council works to make healthy changes in GST rates and several other tax parameters. With the introduction of GST, MSMEs have been able to flourish. As of 2020, the number of MSMEs increased by 19%. The MSME sector is a vast industry which contributes to Goods and Service Taxation. Therefore, MSMEs need to understand everything about GST.
Types of GST
There are four main types of GSTs, namely:
1. State Goods and Service Tax (SGST):
SGST applies to all transactions that occur within a state. All transactions and exchanges are controlled by the SGST Act. The revenue from the tax is collected by the state government.
2. Central Goods and Services Tax (CGST):
CGST regime applies to all interstate exchanges of goods and services in the country. The tax for the same is collected by the central government.
3. Integrated Goods and Services Tax (IGST):
The IGST regime applies to all exchanges including imports and exports of goods between two states. The tax for the same is collected by the central government.
4. Union Territory Goods and Services Tax (UTGST):
The UGST applies to all exchanges within the union territories of India.
The importance of GSTN
GST’s impact on the MSME and small-scale industries can already be seen. GST benefits emerging enterprises by reducing business losses and increasing the overall taxation percentage. Every registered MSME is subject to the GST Single Tax Regime. MSMEs must first apply for a Goods and Services Tax Network (GSTN) number, which maps their fundamental business activities and inventory turnover. The GSTN number connects you to the complete pool of registered MSMEs in the country and is an essential component of the MSME's business identification. A GSTN also evaluates an MSME's eligibility for business financing. If you're a small business seeking an MSME loan, you can apply for an MSME loan online at various NBFCs and other lending institutions. With the help of the GSTN number, you can apply for various MSME business loan schemes offered by lending institutions and the government.
Benefits of GST
With the GST regime in place, MSMEs can now enjoy the various benefits it brings along, such as…
1. A Single Tax
Before the GST regime was introduced, businesses nationwide used to pay multiple indirect taxes such as VAT, service taxes, and more. The taxation entire taxation system was not organised. With the GST regime, the taxation system has become integrated and simplified.
2. Lightened Tax Burden
The practice of entertaining multiple taxes before the implementation of GST led to a higher tax burden on MSMEs. Previously, they had to pay roughly 32% in taxes, which included both federal and state taxes. However, businesses now only need between 18 and 22 per cent GST.
The total production cost for MSME has notably decreased. MSMEs now pay less for transportation of their final goods since transportation falls under the lower GST slabs. As a result, the process became more cost-effective, lowering production costs.
It was difficult for MSMEs to expand their business while paying taxes under the previous regime. Due to the complex tax structures, MSMEs never wanted to reach out to different to other states to expand their business. Previously, there were times when the total production costs would increase due to multiple taxes. With GST, it becomes easier for MSMEs to expand across state borders as it does not adhere to multiple tax rules and payments. GST has opened up many doors for MSMEs in India. These businesses can benefit from the various MSME business loan schemes by the government.
5. Easy registration process
Earlier, MSMEs were required to register under different tax systems because of which, the process was very complicated, lengthy and often come with delays. Unlike the previous system, the GST registration process is simple and quick. With this, it becomes easier for businesses to apply for MSME loans online and avail of the required financing.
The impact of GST on small and medium businesses has been mostly beneficial, with maximum revenue collection for FY 2021-2022. With a Single Tax Regime, GST on MSMEs is designed to reduce painful processes and bothersome tax rules. GST aims to combine resources and provide businesses with the most convenient ways to file their taxes. These new GST updates are aligned with building a self-reliant and accessible tax regime that will help both emerging and existing MSMEs of India. For instance, the GSTN number can be useful for businesses that look for an MSME Loan. GSTN is required for small and medium-sized firms to apply for any MSME Business loan schemes. Since MSMEs are the backbone of India, the government is encouraging small businesses by offering them a lot of advantages like PMMY and PMS MSME Business loan schemes. MSMEs account for more than 30% of India's total GDP. They are a huge source of employment for the people, and over 60 million people work in MSMEs today. According to the statistics, the Single Tax regime will result in huge growth. MSME and GST will bring tax discipline together. It will boom the economy and have a good impact on the MSME sector.