SMEs Still Working Hard to Sort Out Teething Troubles
Struggle with vendors, reverse charge mechanism & clarity on rules
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.
‘FALLING IN LINE’
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.