TMI BlogSMALL BUSINESSES UNDER GST (PART-III)(Issues and Impact)X X X X Extracts X X X X X X X X Extracts X X X X ..... SMALL BUSINESSES UNDER GST (PART-III)(Issues and Impact) - By: - Dr. Sanjiv Agarwal - Goods and Services Tax - GST - Dated:- 6-3-2017 - - Invoicing A registered taxable person supplying taxable services shall, before or after the provision of service but within a period prescribed in this behalf, issue a tax invoice, showing the description, value, the tax payable thereon and such other particulars as may be prescribed. In case of traders or retailers, a memo or bill shall constitute invoice. A registered taxable person shall, on receipt of advance payment with respect to any supply of goods or services by him, issue a receipt voucher or any other document, including therein such particulars as may be prescribed, evidencing recei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pt of such payment. Returns Under existing tax law, assessee is required to submit two half-yearly returns under service tax, monthly /quarterly return under excise and quarterly returns under VAT laws in a year. Model GST law (version-II) provides for the following returns which are required to be filed by the registered person: S. No. Return Periodic return to be filed for To be filed by Persons not opting for Composition Scheme 1. GSTR-1 Outward supplies made by taxpayer 10th day of succeeding month 2. GSTR-2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Inward supplies received by a taxpayer 15th day of succeeding month 3. GSTR-3 Monthly return 20th day of succeeding month 6. GSTR-6 Return for Input Service Distributor(ISD) 15th of the next month 8. GSTR-8 Annual Return By 31st December of next FY Persons opting for Composition Scheme 4. GSTR-4 Quarterly return for compounding Taxpayer 18th of the month next to quarter 8. GSTR-8 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Annual Return By 31st December of next Financial Year Small and medium business enterprises (SMEs and MSMEs) are likely to face challenges in the transition to GST. While the Government expects over 8 million GST returns to be filed in the first month after GST rollout, it is expected that about 90 percent of these returns will be filed by SMEs and MSMEs alone. Software companies and GST Suvidha Providers will provide required Information Technology support to this sector and as such, there lies a good opportunity for software industry from small businesses and retail trade. GSTN has appointed over 30 GST Suvidha Providers (GSPs) who will be the conduit or interface between the taxpayer and th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e GST network (GSTN). Small business can avail the services of GSPs to comply with the GST requirements including invoking / return filing etc. Rate of Tax Under GST law, GST Council has proposed four-tier rate structures, i.e., 5%, 12%, 18% and 28%. However, no abatements have been prescribed yet. Therefore, prima facie , it appears that small traders/retailers would need to pay GST at the rate as may be prescribed for the supply of goods and/or services. However, there will be exemption rate (nil) and zero rate for exports. A special rate for gems jewellery may also be prescribed. A compensation cess is also proposed on demerit / sin goods. Blockage of Working Capital In case traders supply goods or services through ele ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctronic commerce operator like Flipkart, Amazon, Snapdeal etc. to consumers, then e-commerce operator shall collect TCS @ 1% from the amount received from the consumers and then pay the balance amount to the traders/vendors. In such case of e-commerce transaction, there will be blockage of working capital in hands of traders. Impact on Small Businesses Small business would be positively impacted in GST regime as: There will be no dispute as to classification of goods and / or services and within goods and services input credit between excise / VAT / Service Tax shall be available due to one tax Traders would be taking credit without separate registration as dealer There will be no requirement of credit reversal on st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ock transfer but with every transfer, input credit will be allowed. Composition scheme has a larger value limit. Credit of CST is not allowed but IGST is subject to input tax credit as per law. However, cross input between CGST and SGST will not be allowed. Most of the forms used in VAT and CST will be withdrawn. On the fillip side, GST may impact small businesses / traders negatively owing to following Rate of GST may be higher for certain goods / services Most of the exemptions / concessions may be withdrawn or rationalised Stock transfers, unlike present, shall be made liable to GST Return compliances will substantiality increase Job works may be made taxable where as presently, they are exempt against ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... prescribed form. Administrative Control over Small Assessees The States and the Centre have decided on sharing administrative powers wherein taxpayers with an annual revenue of less than ₹ 1.5 crore will be divided between both sides in the ratio 90:10. However, the division will be done in this ratio across four slabs to ensure that the division is uniform - below ₹ 20 lakh, ₹ 20 lakh to ₹ 50 lakh, ₹ 50 lakh to ₹ 1 crore and ₹ 1 crore to ₹ 1.5 crore. Those taxpayers above the ₹ 1.5 crore threshold will be divided equally between the Central and State administrations. The estimated number of total active indirect taxpayers (including those paying Value-Added Tax or VA ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T, Service Tax and Excise) is around 10 million, of which around 4,00,000 are common to the Centre and the States. This leaves around 9.6 million taxpayers, of which around 6.6 million are VAT assessees, 2.6 million are active Service Tax assessees and some 400,000 assessees are registered under excise. But a majority of the 9.6 million tax assessees are below the annual revenue threshold of ₹ 1.5 crore. Only around 1.4 million assessees have an annual revenue of more than ₹ 1.5 crore. In addition, around 5.3 million of these taxpayers will be under the revenue threshold of ₹ 20 lakh under GST, which means they will be exempt from registering under GST. Also, many exempt taxpayers who supply to bigger manufacturers may o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pt to voluntarily register under GST. The Government is estimating that there will be around 8 million taxpayers under GST initially. Most of the Service Tax assessees are in the range of ₹ 20 lakh to ₹ 1.5 crore and the CBEC will now administer only 10% of them. Way Forward With the implementation of GST, which is likely to be done by July, 2017 now, small traders and retailers will be benefitted as the implementation means a seamless integration of goods and service transaction across the states. It will have benefit at different stages of the value chain. For the procurement of raw materials, movement of goods would become less cumbersome, which opens gates for more suppliers /vendors to merge. Following this, a w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ider base of distributors would be available as state boundary paperwork will not be a hurdle, resulting to better access and low transportation costs. A favorable environment for a supply chain will help reduce in-transit inventory and further lower the working capital requirement. Simplified taxes and availability of input tax credits can also help fetch better margins. Along with saving costs at back-end, GST implementation is seen as an answer to the major pain point for the industry -Rentals. Rentals are one of the main costs of retailing industry and it attracts service tax at 14.5 per cent. Currently, the retailers cannot set off these costs like the other industries. This is considered as an additional cost of operating in this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... industry which is unfair to them. Under GST, taxes on services would be available for set off against taxes on goods. Thus, the retailers would be positively impacted. Supply chains would also undergo a change as there will be a shift from tax driven supply chain to demand driven supply chain. This is a significant shift as India would move to barrier free market. Given the large number of suppliers that companies are dealing with now, there's a big opportunity to potentially consolidate the best suppliers, understand their cost structures / supply logistics and negotiate optimal pricing that would lead to incremental savings. Though with the proposed structure of GST, dealing with multiple authorities implementing the law will be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... challenge for companies. Companies will have to think of procurement in a granular way. Right from third-party contracts to understanding supplier's cost structures to where he will get credits, each aspects will have to be studied minutely. And that would require a deep dive into even vendor supply chains, something that wasn't required till now. Given the prescribed tax credit process, a transition to GST would also required ability to handle a huge amount of transactional level data. To manage that, vendors will have to be trained on how his systems capture the transactions and how tax credits are processed in his system to ensure proper transferability of credits. Leading companies will invest in vendor education and hand ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -holding programs, to ensure that their entire supply-chain transitions to a GST regime smoothly. To drive savings and compliance, the supply chain and finance department will have to work in tandem. Core to success of GST compliance is the ability of the company's systems to capture correctly the right set of credits for what your are paying for and at the same time also ensure that your customers are able to claim their credits. For companies that have distributed manufacturing, consolidation can bring about more efficiency. After the regulations are finalized, companies will have to study how to change their manufacturing mix and, as corollary, take decisions like whether to manufacture or outsource. Will come forth for deliber ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ations. Another challenge which companies and businesses in India are likely to encounter will be the sudden rush of all entities to get GST ready, leading to a competition for resources and putting processes, systems, skills and controls in place. Implementation of GST will reduce transaction cost, provide ease of doing business, will reduce food wastage and bring down prices. It will not only bring relief to the consumers, but also help retail sector by building supply-chain efficiencies in India in a big way. This is thus going to be a win-win legislative reform for all. The threshold limit of ₹ 10 lakh or 20 lakh will protect the small businesses. The VAT limit currently varies from State to State, limit is currently at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ₹ 10 lakh, for Uttar Pradesh it is at ₹ 5 lakh and it is only ₹ 1 lakh in North-Eastern States. There is wide variation among States on current VAT threshold. GST Council decided at ₹ 20 lakh threshold which means any dealer who has turnover of less than ₹ 20 lakh will not be part of tax net. This gives huge relief to small businesses in India. However, companies and business / retailers may face challenges in terms of inventory planning, logistics, budgeting, cash and working capital requirements while transiting to the GST regime. Whether the dealers will have to hold inventories or not would depend upon the GST rates. GST will drive businesses to digital economy which would help them access to easy lo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ans, i.e. easy formal credit at a much lower cost which would also help more small enterprises get into the formal and main economic stream. Conclusion As they go along re-aligning their systems and processes to the new tax system, business will also be seeking a lot of clarification. Consumers, too will go through anxiety with many questions in their mind, seeking solid answers. It will be critical for companies to understand their objectives while going about the process of becoming GST-compliant. Different companies will have different objectives. Some would just about like to be GST-compliant, while a few would look at the tax reform event to build up their competitive advantages in the market. - - Scholarly articles for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... knowledge sharing authors experts professionals Tax Management India - taxmanagementindia - taxmanagement - taxmanagementindia.com - TMI - TaxTMI - TMITax ..... X X X X Extracts X X X X X X X X Extracts X X X X
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