GST is going to be implemented in less than a month, and its implementation brings forth an atmosphere of ambiguity for businessmen in India. Its impact on consumers, businessmen, the government and the entire nation will be both monumental and notable as it’s the biggest tax reform in the country since independence. Though its positive impacts outnumber the challenges it poses towards businesses, they cannot be simply ignored. The businesses that would be impacted largely would be the small and medium scaled businesses. The reason behind this is largely to do with the fact that SME simply lacks the manpower, capital, and skill required to absorb such a huge change. However, the challenges seem worth the effort for the long run.
Ease of starting a business, smoother and faster logistics and delivery, a boost in Indian made products, and ultimately a reduced tax burden is few positive impacts that simply will make the challenges worth the trouble. However, costly compliance, increased interest cost, technological hurdles and no duty benefits are a few challenges ahead of SMEs under the GST regime. In the face of these challenges is one major concern-A shift to an electronic compliance system.
According to the SME Chamber of India, the micro, small and medium enterprises sector in India contributes 45 percent of the industrial output, 40% of exports, employs 42 million Indians, and creates an average of one million jobs every year while producing more than 8000 quality products for the Indian and the international markets.
But only 50% of this sector is “technologically” skilled of complying with GST rules. Also, the manpower with these sectors is not dedicated enough to follow up with vendors and suppliers to ensure timely payments or invoices.
Here are a few ways SME’s can be prepared in advance:
- ITC calculation: Extremely important:
It is crucial for SME’s to understand everything there is to know about input tax credit. This will help them manage their working capital and reduce costs significantly. SMEs must understand all legislations surrounding ITC as this ultimately will determine the cost of compliance to the enterprise. Under GST, ITC can be claimed on many expenses and one must be aware of these advantages in order to harness them for the business. These expenses include expenses incurred on “furthering of business”, marketing expenses etc. When one can claim ITC on these expenses it significantly reduces operational costs, thus increasing margins. Also, since ITC largely impacts working capital, compliance in this area is very important.
- Invoices and transaction details should be kept safely:
Only when the invoices from the buyer and seller match can a company claim for ITC. Therefore the entire supply chain has to be disciplined regarding the maintenance of records. SMEs will also have to acquaint themselves with the technological part of ITC claims and make sure their suppliers are compliant as well.
- Keep cash handy in case of liquidity problems
Businesses might face solvency problems while adjusting to the new system. At such a time they need not worry as companies like https://flexiloans.com will lend you money at reasonable rates without credit score and collateral to meet your short term requirements.
- No more manual book-keeping
Since GST aims at digitalizing processes, manual book-keeping will no longer be required. This is solely because manual book-keeping paves way for errors and this cannot be tolerated since invoice matching is crucially important under GST. The GSTN platform will be an online portal to upload invoices and will deal with all GST related issues. SMEs will have to go that extra mile to train their manpower in line with all these technological adjustments.
- The importance of compliance software:
One can file tax returns on the GSTN portal but if one isn’t acquainted with the forms and technology required then one must buy a compliance software that makes filing returns an easier task. It also avoids mistakes made while filing returns and uploading documents. Under GST it is mandatory to file 37 returns in a year and there can be no errors in this.