Let us first analyze the impact of GST on business transactions. The impact of GST is such that it has the effects on any business at two ends of the spectrum where transactions are involved i.e. for input transactions and for output transactions.
- Transactions bearing Impact on input transactions: Input transactions are those transactions that are carried out for the supply of input goods / services like raw material procurement, imports etc. These will be directly affected due to the changes in taxation levels of raw materials/industrial inputs, affecting the product or service pricing.
- Transactions bearing impact on Output transactions: The output transactions are the one that are done for outbound supplies or service delivery. For example, sales is an output transaction and GST here would directly impact the sales by altering the taxation of the product or service being sold. Depending on the new tax slab of the goods or service, the profitability of the enterprise will be directly impacted.
Another significant area of impact is the concept of “place of supply” and “time of supply”, calling for more stringent supplier compliances.
Impact of GST on SMEs: The scenario for Small and Medium sized enterprises businesses is set to change under the GST regime. The first and foremost change is that, all businesses, including SMEs will need GST registration under the rules as per the following threshold limits related to aggregate turnover in the preceding financial year. The limit is said to be Rs. 9 lacs for North Eastern states and Rs.19 lacs for rest of India.
So why should an SME register under GST? Once registered under GST, these SMEs will be recognized as a legal provider of goods and/or services. Tax accounting will be streamlined. Such an SME will be able to maintain proper accounting of taxes paid on input goods or services, and be able to utilize the inputs credit facility to enable better cash flows. The new taxation structure "the Goods and Services Tax law” will provide an opportunity for SMEs to digitize their transaction management, making it efficient for the future. If such an SME scales up, it will be prepared in advance to manage large-scale transactions through software. And hence the enrolment under GST provides a window of opportunity to modernize the business and set up standards for doing business easily in the future.
Let us now take a tour of some the pros that GST brings to SMEs by doing a comparison study, trying to gauge the impact/benefit by keeping erstwhile taxation laws as bench marks.
To conclude, one can hope that GST would have some immediate impacts on these SMEs. When more and more number of SMEs would come into the taxation fold, the transaction centric compliances, technology adoption for GST compliances would become a necessity for these SMEs to operate their businesses and for which they would be required to upgrade to technology driven drive which GST demands. And here's where an ERP Software like Tally.ERP 9 comes in handy and rescue for these SMEs to handle all the compliances related portfolio and also enabling these enterprises to quickly and easily file their returns with one click. And once these SMEs gear up with proper ERP systems, then GST will ensure a long term steady growth for the Indian SMEs, making them more competitive than before. Not only will we see the Indian SME competing with local large enterprises, but also foreign competition coming in from cheap cost centers such as China, Philippines and Bangladesh after the GST setup would benefit the Indian economy in the time to come.