Smaller businesses might experience cost savings on raw materials and simplified Goods and Services Tax (GST) administration
The Indian government has introduced a series of reforms aimed at making it easier for small and medium-sized enterprises (SMEs) to navigate the Goods and Services Tax (GST) system.
One of the key changes is the automatic GST registration for low-risk applicants and those with an estimated output tax liability on supplies to registered persons of less than ₹2.5 lakh per month, a move that is expected to encourage more businesses to join the formal tax network.
The GST Council has approved a twin-rate system, with slabs at 5% and 18%, and some goods in the 40% slab. This system is designed to lower input costs for MSMEs, potentially boosting their export competitiveness.
Under the new system, the levy on finished food products such as all Indian breads, ultra-high temperature milk, pre-packaged cottage cheese (paneer), and various other items like bhujia, sauces, pasta, instant noodles, chocolates, coffee, preserved meat, cornflakes, butter, and ghee has been reduced from 18% or 12% to 5%.
Additionally, the tax rate for many raw materials used by MSMEs in sectors like household items, food, agriculture, and healthcare has been reduced from 12% to 5%. This reduction is expected to make a wide range of raw materials cheaper, further lowering the costs for MSMEs.
The GST revamp also includes provisions for provisional refunds, with the government set to provide a provisional refund of 90% of the claimed refund, as in the case of zero-rated supplies. This is expected to boost MSMEs' working capital.
Moreover, the simplification of GST registration is likely to benefit approximately 66 million MSMEs in India. The reduction in GST on handicrafts and leather goods, as stated by Vinod Kumar, president of India SME Forum, is likely to boost demand for the country's artisans.
The GST reforms come at a time when India is navigating a 50% tariff imposed by US President Donald Trump. The easing of the GST burden on MSMEs is a significant step towards addressing the challenges faced by these businesses due to tariffs and other global economic uncertainties.
It is important to note that the organization responsible for introducing the two-tier GST system for goods and services, and the exact date of this decision, are not currently known.
In conclusion, the simplified GST registration process and the rate reductions on various goods and services are expected to significantly benefit India's MSME sector, potentially boosting their export competitiveness and supporting the country's artisans and small businesses.
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