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Bigger Relief Packages Await Indian SMES in Moment of Economic Shock and Awe


Nearly three months after the GST was introduced with the larger vision of ‘One Nation, One Tax’, the GST council in its 22nd meeting on 6th October 2017 announced a slew of relief measures for businesses, primarily to bring relief to the SME sector, which accounts for the majority of economic activities in India and employs over 45% of its workforce. The meeting was undoubtedly a timely step of the government towards course corrections at the back of GST implementation that impacted small businesses to a greater extent even though the new tax regime is expected to bring boon for the entire economy in the long run. After the June quarter of the current financial year recorded the lowest ever deceleration of the economic growth at 5.7%, the government has shown utter responsiveness to deal with the crisis that most argue to be the direct fall out of the government’s two major structural policy initiatives, namely demonetisation and GST (Goods and Services Tax) implementation.

As a matter of fact, the sudden withdrawal of nearly 86% cash from the economy last year affected the cash-dependent SMEs for the most part, crippling them to the extent of some shutting down their businesses. The GST, effective from July 1, 2017, has further added to the woes of small businesses with most of them having been cast into the tax network for the first time besides having them grapple with a host of other issues, including the monthly filing of returns via GST Network.

Undeniably, the government of the day initiated these policy reforms keeping various well-intentioned targets in mind. However, with the return of almost 99% invalidated cash back into the banking system, demonetisation is now seen as a self-defeating policy measure even as it completes its 1st anniversary on 8th November 2017. Moreover, the GST, until the 22nd GST council meeting, wasn’t a longed-for move for small businesses despite the enabling factor of the new tax regime to integrate them into the formal economy.

As part of its corrective measure, the government on October 6 meeting had made some important changes in the GST rules in a bid to ease the compliance pain for small businesses and facilitate the ease of payment. SMEs with an annual aggregate turnover of Rs. 1.5 crore can now file quarterly returns and small service providers whose annual aggregate turnover is less than Rs. 20 lakh can operate across multiple states without having to register with the GSTN. Post-July 1 implementation of the GST, small businesses were mostly hit hard by the mandatory GSTN (Goods and Services Tax Network) registration, payments, refunds and returns. To be precise, most SMEs reel under the lack of technical expertise, let alone their easy adaptation to the GSTN without having them incur any additional cost of hiring intermediaries. In addition, the ceiling for the composition scheme has been raised from Rs. 75 lakh to Rs. 1 crore.

In order to further boost the confidence of SMEs and address their complaints, a group of state finance ministers (GoM) has recommended another round of revamping of the GST structure. The recommendations are expected to be taken up in the next GST council meeting, scheduled to be held on November 9 and 10.

The larger focus of both the policy reforms has seemed to have lost the plot after the unexpected repercussions that had followed their implementation. In both instances, be it demonetisation or the GST, SMEs have taken the maximum brunt of some missteps. No doubt the efforts towards digitised and cleaner economy are well-understood and -appreciated, but the impact it has created in the informal sector in the short-term is unreasonably high.

In all this moment of shock and awe, the government’s responsiveness towards coping with this economic mess can’t be just dismissed as a political move; rather it deserves a commendatory grin. The recent announcement of recapitalisation plan for public sector banks (PSBs) to the tune of Rs. 2.11 lakh crore is pretty timely given the immediate need for purging the banking system of bad loans and unproductive assets. The move is expected to unclog the banking system of non-performing assets and thereby allow clearing price to be established for bad assets. Also, it will ensure a greater flow of credit into the economy.

The upcoming GST council meeting is expected to further reduce the compliance burden on SMEs, thereby boosting their confidence to join the GST Network without a hitch. The GoM has recommended increasing the composition scheme eligibility cap from Rs. 1 crore to Rs. 1.5 crore alongside a flat tax rate of 1% for traders, manufacturers and restaurants. In fact, this move will attract more assessees into the GST net in the coming days.

It is therefore heartening to note here that both the central and the state governments have cognizance of the economic disruptions caused by the implementation of the GST and the immediate need for corrective measures to enable businesses to move on with their economic life. Despite external agencies like the International Monetary Fund (IMF) and the Asian Development Bank (ADB) projecting positive outlooks for the Indian economy and our improved ranking in the World Bank Ease of Doing Business Report 2018, there is an urgent need to persistently pursue curative policy steps that show results on the ground.

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