The impending GST maelstrom is coming and millions will be caught unawares
Just how many small businesses will be able to swim?
As the GST train rolls onward to the proposed implementation date of 1st of July, millions of small Indian businesses are woefully under prepared for the transition to the new tax regime.
GST has been rightly billed as a landmark tax reform. It heralds not just a new unifying tax but also a new way of doing business for an overwhelming majority of Indian businesses. Whilst its success in fostering growth remains to be seen, its disruptive potential has not been properly assessed by most commentators.
The transition to the new regulations will not be easy in the given circumstances. With little more than 50 days to go for the implementation date. You would think it will be highly unusual for there to be no clarity as to which products and services will be taxed under which rate when GST comes in. This prevents many businesses from ascertaining the impact of GST upon their bottom lines, the business owners have no way of knowing if their inputs are going to become dearer and how much additional cash they will have to inject into their businesses.
Small service businesses are already apprehensive of the tightening of their cash kitty on account of GST recovering taxes from them on a mercantile basis. This is in contrast to the prevailing system under service tax regulations wherein businesses up to a certain size were allowed to pay taxes on cash basis.
To make matters worse, there is an abundance of confusion around various procedural aspects of the new system. For example. there is no clarity on filing of returns from It is a known fact that GST is going to increase the overhead of small to medium sized businesses significantly. This will be even more notable where such businesses operate in more than one state. The GST acts talk about submission of data at three different times per state every month. On the other hand the government has stated on a number of occasions that only one return per month per state shall be required. In the absence of an official notification to this effect, confusion reigns supreme.
There is also the small matter of the significant rejigging of current business practices and procedures that the new tax system requires. This is something most businesses do not acknowledge and as a consequence are unable to prepare for.
All in all, given the lack of clarity and preparation the first months after GST may see panicked reactions not unlike those that followed after demonetization. Businesses, specially ones that wish to not just stay afloat but thrive, should learn to swim in these waters.