SMEs Still Work­ing Hard to Sort Out Teething Trou­bles

Strug­gle with ven­dors, re­verse charge mech­a­nism & clar­ity on rules

The Economic Times - - Finance & Commodities - Vinod Ma­hanta & Sachin Dave

Mumbai: In­dia’s big­gest job-cre­ators – the small and medium en­ter­prises(SMEs)—arestill­strug­gling to cope with the changes brought about by the coun­try’s big­gest tax re­forms more than a month af­ter the in­tro­duc­tion of the single pro­ducer levy.

The swelling list of teething prob­lems, such as deal­ing with un­reg­is­tered ven­dors, crack­ing har­monised sys­tem of nomen­cla­ture (HSN) code, and adopt­ing re­verse charge mech­a­nism (RCM), has com­pounded mat­ters. The lack of un­der­stand­ing and clar­ity on new reg­u­la­tions in some ar­eas, and the in­dus­try’s gen­eral aver­sion to­ward get­ting into the “sys­tem” would ap­pear to be ex­tend­ing the learn­ing curve.

“The gov­ern­ment cri­te­ria are not clear in many ar­eas. Smaller traders,ven­dor­sand­sup­pli­er­sare­un­der stress be­cause they don’t know how to deal with RCM. It is just an added trans­ac­tion­fors­mall­ser­vi­ce­providers. They feel if the amount will be re­versed later why go through the pain of en­ter­ing it in GSTN. A lot of small traders pre­fer work­ing un­der the radar,” says Govind Mit­tal of Kota, Ra­jasthan-based Mit­tal En­ter­pris­es­that­dealsin­chem­i­cals.

Brack­et­ing out­put is an­other ex­er­cise at crack­ing the HSN puz­zle. The Kota stone, for in­stance, could be­pro­cessed­in­toad­ec­o­ra­tive­stone, floor­ing stone, or fin­ish­ing stone — each with a dif­fer­ent code.

The com­plex­ity was high­lighted by even GST Net­work chair­man Naveen Ku­mar. He men­tioned in a re­cent in­ter­view that a large per­cent­age of busi­nesses are not in a po­si­tion to com­ply with GST ahead of the Aug 20 dead­line for fil­ing self­assessed re­turns.

In­dia has about 45 lakh SMEs, of which about a third have not reg­is­tered for GST, point out ex­perts.

Ex­perts at­tribute the prob­lems to the in­dus­try-wide lack of prepa­ra­tions. “A lot of SMEs did not start prepa­ra­tions in time for GST, as­sumin­git­won’thap­pen.The­gov­ern­mentoutreach­pro­gram­startedalit­tle late but they have done a lot to ed­u­cate all types of busi­nesses,” says Pratik Jain, Part­ner and Na­tional Leader – In­di­rect Tax, PwC.

Mean­while, Ker­ala’s food busi- nesses, a big part of lo­cal in­dus­try, are walk­ing the tightrope be­tween se­cur­ing GSTN reg­is­tra­tions and stay­ing com­pet­i­tive.

“Ear­lier, most of the smaller com­pa­nies in food-re­lated busi­nesses in Ker­ala were out of purview of the value added tax (VAT) and en­joyed ex­emp­tion un­der the Small Scale Units Ex­emp­tion Act. Most of them paid 5% or 14% ex­cise. Un­der GST, very few items fall in the 5% slab. So, with the new tax rates, small busi­nesses must raise their prices in a price-sen­si­tive mar­ket,” says Kot­tayam-based Xavier Thomas, MD, San­son Chem­i­cal In­dus­tries. And there is no clar­ity on how some items will be taxed. Take hol­low ce­ment bricks as an ex­am­ple. Bricks that are used ex­ten­sively in Ker­ala for pav­ing roads and houses now at­tract 28% tax de­spite hav­ing just 20% ce­ment com­po­nent. Ear­lier,the­seat­tracted5%VATand were out of ex­cise purview.


To be sure, some smaller busi­nesses are also ac­knowl­edg­ing the ben­e­fits. “We used to buy raw ma­te­rial and pay CST (cen­tral sales tax) plus ex­cise duty. We never used to get­cred­itofCST.Nows­inceCSThas merged with GST, we will be able to get claim of full GST,” says Ji­ten­der Agrawal of Agar­wal En­ter­prises, a chain link sup­plier in Solan, HP. Sim­i­larly, Amit of Agra Shoes Mart says ac­cept­ing the change is the way for­ward for the smaller busi­nesses.

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