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Relief from tax credit accumulation
“In order to address the challenges faced by MSMEs, the government should streamline the process of adjudication and assessments to address the procedural issues in processes involving GST registration, refund claims, and addressing queries of MSMEs,” Partner- Indirect Tax at BDO India Karthik Mani said.
In many cases multiple slabs led to higher taxes on inputs than the finished products. This in turn created a situation where the entire tax credit of input could not be adjusted in sales (output taxes). The correction of inverted duty structure being attempted as part of the reforms is expected to resolve this issue satisfactorily.
“Currently, the units have to file for a refund of tax credit accumulated due to the inverted duty structure. The refund takes time and there are costs for filing for those refunds. Less number of slabs could address the issue of accumulation of tax credit,” Founder and Chairman of Integrated Association of Micro, Small and Medium Enterprises of India Rajiv Chawla said.
Simplifying compliance for small businesses
Another major compliance-related issue raised by the experts was the notices that thousands of units get for transactions that sometimes go back more than 5 years. Another issue is the “rigidity” of the tax department in dealing with changes that businesses go through. The units sometimes get notices seeking refund of tax credit for transactions done in the past with companies which are no longer in business.
The reform process should also deal with siuch day to day issues, he added. He also asked for a re-look at the Input Tax Distributor (ISD) concept introduced from April 1 this year. ISD mechanism is meant for distributing the credit to crunches of businesses on common input services that were procured by the head office.
For micro businesses the experts sought relaxation in conditions for registration in multiple states. This will also help in bringing small sellers on e-commerce platforms and give a boost to the government’s initiatives like One District One Product (ODOP), secretary general of Federation of Indian Micro and Small & Medium Enterprises (FISME) Anil Bhardawaj said.
At present businesses with a turnover of up to Rs 40 lakh have an option not to register for GST. But a seller who may just be starting out on e-commerce platforms has to register from day one. Moreover an e-commerce seller cannot sell products in other states unless he or she registers for GST in those states too, which limits the market reach, he said. As small producers cannot sell directly across states because of the requirement of multiple registrations, they end up selling to larger players who can manage the process thus limiting their profits, Bhardwaj said.
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“The government may increase the threshold for obtaining GST registration and may do away from the monthly/quarterly compliance system to a bi-annual or annual returns system. Considering the requisite sales and tax liability data is already captured on a monthly basis in the Government portal,” Mani of BDO India said.
The reform should also provide a simpler process for addressing queries of the taxpayers through written responses rather than making MSMEs go through the process of Advance rulings, he added.
Another issue that MSMEs want to be addressed is greater coordination in the GST systems so that tax credit and debit across states can be adjusted seamlessly which will also help with the liquidity of the units.
The ‘Inspector Raj’ is another irritant that they want to be addressed while the GST review is taken up. While at the central level this problem has been more or less settled, in some states the oversight of officials is overbearing, they said.