Insights from Deloitte’s GST@7 survey
According to the survey, 78% of MSMEs now holds a favourable view of GST’s 7-year journey, up from 66% in the GST@6 survey of 2023. 70% find quarterly return filing beneficial and expressed efficiencies in the supply chain as a key positive area. Around 69% of the respondents demonstrate robust support to tax compliance automation, e-invoicing etc as top performance areas of the Government.
Keeping in mind the industry sentiment, the much anticipated 53rd GST Council meeting convened on 22 June 2024, set the stage for more trade friendly measures to be adopted.
Recommendations of the recently concluded GST Council meeting
Some of the proposals made by the Council such as conditional waiver of interest and penalty not involving extended period of limitation, extension of time limit for availing of input tax credit (ITC) for invoices or debit notes, introduction of GSTR1A for amendment in GSTR1, rate rationalisation on specified products etc. would enable taxpayers including the MSMEs to experience a notable improvement in functioning of the business. To strengthen the registration process and combat fake ITC, biometric-based Aadhaar authentication of registration applicants has been proposed pan-India, in a phased manner which will further ease out the credit availability for the MSMEs.
The Council has also recommended reducing the Tax Collected at Source (TCS) rate for e-commerce operators from 1% to 0.5%. This particularly reflects a conscious effort by the Government to address the challenges being faced by small businesses like MSMEs and to help ease the working capital and financial burden on suppliers using these platforms.
GST 2.0 – Reforms to boost the MSMEs
While the Government has shown willingness to address the sector concerns, MSMEs are looking forward for additional focus on introducing transformative and progressive reforms for its growth and the economy at large.The insight from the survey reveals that 88% of MSMEs expects further liberalisation of ITC by way of removal of restrictions on ITC which has been a universal challenge across businesses. The Government should permit small businesses to claim ITC based on the invoice received and without the requirement to match with the auto-generated GSTR 2B.Further, 79% of the respondents expects more rationalisation of GST rates for the entire supply chain, 74% want a mechanism to unlock the working capital measures and 73% are looking forward for the Government to address the inverted duty structure in a holistic manner.
While the Government has been receptive on the challenges faced by e-commerce operators, the industry continues to hope that the Government will further make amendments as we move towards GST 2.0 to exempt GST TCS on e-commerce operators on facilitation of zero-rated supplies (ie, primarily exports), to help with the cash flow issue for exporters and facilitate the ease of compliances.
The survey also reveals that the industry continues to experience challenges by way of authorities’ pro-revenue stance, aggressive audit techniques, prolonged proceedings and parallel proceedings being initiated by central and state authorities. The GST Council should aim to further streamline the document requirements for audits and assessments which would benefit all taxpayers, especially the MSME sector.
Presently, the GST law prescribes multiple conditions for a dealer to opt for the composition scheme such as no inter-state supply can be made, no ITC can be claimed on procurements, turnover capping at Rs 1.5 crores etc. The small businesses are unable to take advantage and register for the composition scheme, where interstate sales are sought to be made by below threshold or composition dealers. The Government should consider relaxing the conditions to enable small businesses to avail the benefit of the composition scheme.
Furthermore, the industry expects the Government to revise the Production Linked Incentive (PLI) schemes, expanding benefits to new sectors like apparel, textiles, and furniture, which are significant job creators driven by MSMEs.
As GST completes seven years, and we are moving towards GST 2.0, continued consistent policies promoting “Atmanirbhar Bharat” are expected, aiming to reduce operational costs, improve customer experience particularly for MSMEs and bolster India’s economic growth.
The writer is Partner, Deloitte India