The GST Game – What Can SMEs Do to Stay Ahead?

With GST having become a reality now, every business and service provider is dealing with its ramifications, the good ones as well as the bad ones. As a business owner, no matter what you think of GST, India’s biggest tax reform is here to stay. In case you are looking for how dual GST works or want to have a general idea about GST, please click here to read the previous article.

In such a scenario, compliance is no longer a choice but a mandatory requirement. As a small business owner, it is helpful to understand what needs to be done to stay ahead of the curve.

Managing Your Working Capital:

Inability to generate and consequently not being able to manage working capital effectively leads to slowdown in growth for many small businesses. GST affects working capital as well. The trick is for you to understand how and then also to find a way to use the same to your advantage.

Earlier, there was a limit to what the business owner could claim as credit, especially for money that was spent on overheads. Under GST, this concept of input tax credit has been broadened. So, now you can claim input tax credit on all tax paid for services used for furthering of business. Thus, cost of operation will go down and margins will increase. The bottom line, you will need to understand input tax credit quite well.

Digitization:

One of the biggest changes under GST is that the process of taxation and compliance has been made online. Given that invoice matching is critical to GST, investment in technology as well as capacity of staff are things that you will need to invest in big time. In addition to this, you can also look at purchasing some compliance software that will make the task of filing much easier.

Deeper understanding:

To play the game well and stay ahead, you need to invest time and get involved to fully understand the implication of GST and how it will affect your business. Rules of compliance should be thoroughly considered and all required transitions should be expedited. It will make sense for you to get a good tax consultant on board who can offer advice and complete transition of any sort of implications under the new guideline.

Competition:

The GST game, as we are calling it, will open a world of opportunities for you as a small business owner. It will allow you to play on the same field and market along with much bigger businesses. By the opening of this platform you will be able to compete with the big boys. One of the rules to stay ahead in the same thus, would be to bring out your most dynamic strategies and leverage the competition to your advantage, the best that you can.

When it comes to the overall effect of GST on small businesses, there are both pros and cons. As a business owner while it will be easier for you to start a new business with better and more streamlined logistics as well as faster delivery of services, there is also the downside of compliance costs going up.

Given that the tax reform has only just come into implementation, whether the effects of it are going to be more positive or negative remains to be seen. Your business needs to be GST ready and that is a reality. There are steps that you can take to ensure that you are optimizing the benefits and navigating the challenges effectively. Other than that, the larger overall scoreboard of this GST game is yet to come to the fore.

Why Dual GST and How it will affect your Business?

Businesses all over the country have felt the impact of the government’s decision to change the country’s goods and services tax code. The new tax, GST, will change the way our country does business, affecting all businesses engaged in sale/supply of goods or supply of services.

What is GST?

The Goods and Services Tax (GST) is a revised and comprehensive form of previously implemented Value Added Tax (VAT). The GST is an indirect tax and replaces many cascading taxes levied by both Centre and State governments. Supply chains, ERP services, product pricing, etc. will all fall under the ambit of GST.

What is Dual GST?

The Union Government and the States were unable to form a consensus for tax revenue sharing. Therefore, the government has introduced a dual GST system – Central GST (CGST) and State GST (SGST).

Example – If a dealer in Rajasthan, selling goods to consumers within the state, makes a sale of INR 20,000 at 18% GST rate. Then the dealer will collect INR 3,600 as total tax. In this case CGST and SGST will be shared by Centre and State equally as INR 1,800 each.

Effective July 1, both CGST and SGST are applicable on the taxable value of goods and services shipments pan India, except in the State of Jammu and Kashmir.

Impact of GST on your pricing

Implementing GST will reduce the impact of numerous indirect taxes which were applicable on your manufacturing and supply chain. This will allow you to decrease the cost of product and services in mid to long term and pass on the benefits to your customers. Although, for various services, the short-term prices may go up as the tax rate has been raised by 4-6%.

Effects of GST on your SME:

The dual structure of GST is meant to be fairly simple and transparent, with only a handful of CGST and SGST rates being implemented. The new tax regime includes both costs and benefits for SMEs:

• Reduction in the number of taxes you were paying earlier. However, Customs Duty and some other levies are still in place for imports and excepted items under GST

• Reduction in your transactional costs due to simplified tax compliance code and online procedure • On the flip side, GST might increase your operating costs if you do not have tax professionals to look after your annual filings. So, hiring an expert may be your only way to have tax compliance

• Compliance issues may also arise due to the mid-year implementation of CGST and SGST

• If you are running a manufacturing SME the tax burden may increase since the excise laws exempted units below 1.5 crores whereas the limit is now 20 lakhs

Who should register for GST?

• If your business is registered under VAT, service tax or excise duty, you can move your registration to GST. Also, firms and companies with a turnover of 20 lakh or more per annum are mandatorily required to have a GST registration. If your business involves inter-state transactions, GST registration is mandatory for you, regardless of the turnover

• Websites and portals where supply of goods and services is managed are also required to register with GST without exception

• An Input Service Distributor, which means a head office that receives billing for all its branches, is also mandatorily required to register for GST

Have you adapted to the new GST regime, and how much impact do you think it has had on your business? Let us know in the comments.

The sequel to this post will deal with how to leverage GST in getting competitive edge for your business.