Talking on a variety of MSME related aspects, in the backdrop of the interim budget 2019 slated to be announced in few days, Saurabh Agarwal, Managing Committee, ASSOCHAM, highlights his expectations from the Finance Minister, the key hits and misses of the GST framework, and how, going forward, the ‘one nation-one tax mechanism’ could be made more pro-MSME.
How do you see the current GST framework? What could be its important hits and misses for the MSMEs sector?
The current GST framework is encouraging for Micro, Small and Medium Enterprises (MSMEs). Its major hits include doubling of the exemption limit to Rs 40 lakhs and increasing the turnover cap for availing the composition scheme to Rs 1.5 crore. MSMEs under the composition scheme will file just one tax return annually and pay taxes every quarter. Composition taxpayers are also exempted to maintaining detailed records normally required. The availability of free accounting and billing software for small assesses will save on costs.
Its major misses include reforms required in the input tax credit claim settlement, the reverse charge mechanism, limiting the re-opening of books of accounts to three years, GST to be made payable on cash receipts, and levy of tax on service received or rendered between branches of same company.
Any suggestion on Govt’s move to double the GST exemption limit for MSMEs?
The move was very much needed to reduce the pain of ailing MSMEs. I would, however, recommend the government to increase this limit to Rs 60 lakhs in a phased manner. Currently there are about 10.93 lakh taxpayers whose turnover is below Rs 20 lakh. If we would assume a similar number once the threshold limit is increased to Rs 40 lakh, than an additional 7-8 lakh assesses will benefit. While many MSMEs may become eligible under the new threshold, not all would like to be part of the composition scheme as they may want to be part of the GST chain and take the benefit of the input tax credit.
Is there a need for further rationalisation of GST?
GST is still “work in progress” and rate rationalisation is desirable. The 28% slab is undesirable and should be phased out once the revenues become stable under the GST. Many items are becoming unaffordable by middle class. This is resulting in reduced demand of products by MSMEs. The 4-tier rate structure should be reduced to 3-tier particularly to benefit the small businesses that face difficulty in using Harmonized System of Nomenclature (HSN) Code, Services Accounting (SAC) Code and applicable GST Rate. The 4-tier rate structure coupled with special rates is still complex for many small businesses that are not adapting themselves to use GST Rate Finder.
The 28% slab is not desirable as these are indirect taxes and are in addition to the direct taxes. The overall tax rate reaches a whopping 53% to 58% which is undesirable. Any further taxes will only lead to tax evasion in the long run. A two or three rate structure is desirable for better compliance.
There is a proposal by the FM to link Trade Receivables electronic Discount System (TReDS) network with GSTN, how do you see this proposal?
TReDS is a novel financial innovation for financing of trade receivables of MSMEs. Such a linking will give boost to the platform by increasing the visibility. Banks will also have access to the information of cash inflows and genuine bills of MSMEs facilitating credit analysis and better receivables management. The only area of concern is that banks may follow tight credit standards, and this may lead to financing of trade receivables for only those MSMEs having sufficient cash surplus.
GST’s refund mechanism, including its data matching is still regarded as Achilles heel by smaller firms that saw their working capital requirements rise.
GST refund should be completely online system. It should be a priority to operationalise the refund module on the GSTN. All manual submissions and delay due to improper documents should be done away with to solve the cash flow issues faced by MSMEs. The issue of refunds will be minimised to a great extent if GST could have been collected on cash receipts for MSMEs.
The reach and access of GSTN in far-flung areas is still an issue. Isn’t it?
Yes, MSMEs still continue to face troubles in logging in and submitting information. Most businesses find the process to be time-consuming and costly. The rectification of errors on GSTN site is also complex. Low internet connectivity adds to troubles faced by MSMEs.
Source- Economic Times.