Streamlined GST Registration To Boost MSME Growth: Deloitte India

Easing goods and services tax (GST) registration by implementing streamlined processes, such as virtual verification and standard documentation across the country can help micro, small and medium enterprises (MSMEs) effectively navigate compliance challenges and contribute more robustly to India’s economic growth, Deloitte India has said in a report.

The survey highlights the profound influence of GST on various sectors, with competitive pricing of goods and services recognised by 73 per cent of respondents as one of the most significant positive outcomes. Automation of tax compliance continues to be voted as a top performance area by industry leaders, followed by enhanced stakeholder engagement and the issuance of clarificatory circulars/instructions.

The GST@7 Survey stated that about 78 per cent of MSMEs have shared a positive sentiment towards GST implementation this year versus 66 per cent in 2023. Nearly 70 per cent of respondents continue to believe that the quarterly filing of returns for MSMEs is beneficial and improves compliance. Specifically, the key positive area for 70 per cent of MSMEs has been called out to be supply chain efficiencies. 

“Key initiatives sought by MSMEs are paperless invoicing and uniform registration guidelines across India will significantly ease compliance burdens. Matching concept challenges of MSMEs in 2023 was at 64 per cent and are now down to 37 per cent, indicating that this area is more streamlined now,” said Mahesh Jaising, Partner and Leader, Indirect Tax, Deloitte India.

Notably, Motilal Oswal Financial Services has said that the policy agenda of Modi 2.0 will continue in Modi 3.0 as it may sweeten the deal by providing relief in taxation and rationalizing the GST structure. The report added that the policy decisions of Modi 2.0, about attracting investments, increasing capital expenditure and focusing on infrastructure creation and manufacturing, are likely to continue in the new regime. 

Blast From The Past

Last year, while speaking at an industry event, experts pitched for a simplified taxation regime as it holds the key to empowering India's small and medium enterprises (SMEs). They also said that embrace the concept of a virtual place of business for efficient ecommerce oversight.

Speaking at the Federation of Indian Small and Medium Enterprises (FISME), they talked about the challenges faced by MSMEs within the ecommerce sector under the current GST regime and put forth recommendations to promote ease of doing business. Anil Bhardwaj, Secretary-general, FISME stated that tax processes, harassment and intimidation by state tax authorities are pulling the clock back for ease of doing business.

Bhardwaj added, “It is astonishing that while PM Narendra Modi is giving a lot of push and encouragement to digital and e-commerce trade to connect small entrepreneurs and artisans to wider markets through e-commerce, they encounter huge difficulties in complying with GST provisions. They are required to obtain multiple registrations in states where goods are stored, are asked to create a full set-up and wait for months to add new places.''

Move Towards A Developed Economy

India needs to shift the taxation focus from 'rates' to 'revenues' to become a developed economy with a USD 25 trillion gross domestic product (GDP) by 2047, according to the experts at the Think Change Forum roundtable on accelerating the country's growth.

Industry experts noted that India can reduce taxes, maintain a low tax-to-GDP ratio and still collect robust taxes because of its large population. The informal economy needs to become part of the tax net to enable the transition from being a large economy to a developed economy which as per Think Change Forum estimates lies in the range of 30 to 35 per cent.

The emphasis on the need for a new taxation ideology during the discussion to make the transition from rates to revenue focused on lowering tax rates, enlarging the tax-paying base and thereby creating the means for financing India’s investment and development needs.

Sudhir Kapadia, Senior Partner, EY India said, “Conventional higher tax rates haven’t resulted in significant tax buoyancy. Recognising this fact, governments in India since 1991 onwards have clearly batted for moderate tax rates leading to greater levels of transparency and compliance. Going forward, it needs to be seen how much fiscal space governments will have to further lower tax rates from current levels. This is especially so as demands on government spending especially in physical and social infrastructure continue unabated to enable meeting high economic growth targets. This is the delicate balancing act which governments will have to grapple with."

Kapadia added that the time has come to bite the bullet for reforms in direct taxes. There could be one simplified rate structure for businesses and individuals, there could be one simple three-rate structure with low/moderate rates, no surcharges and cesses and no significant deductions.

“On GST, a lot has been spoken about the rates and it is time to have a far lower number of rates in GST structure. It is also time to ensure we do not have constraints related to availing of input tax credits. There has been a steady increase in income tax revenues but we need to have continued focus on taxpayer experience with tax administration and ensure the filing process remains seamless and hassle-free,” Kapadia added.