It's time to simplify GST norms for MSMEs

Much has been said about Indian MSMEs. Its importance and contribution to the Indian economy is unquestionable. Given the number of people involved in small businesses and its employment potential, respective governments have taken various steps to make this segment grow through various incentives. However, MSME sector remains eternally credit-starved with small units making it economically inefficient. The Covid pandemic has hit this sector hard. Many people have lost their livelihood and are not able to resume business owing to lack of capital. Many of units operating in MSME sector are out of tax net despite rapid implementation of Goods and Services Tax (GST). Lack of intelligent data makes it difficult for policymakers to come up with right policy interventions. Though the situation is improving in recent years, still there is a long way to go.

In this perspective, industry body Nasscom's recommendations with relation to GST rationalisation for small businesses seem relevant. As per the industry body, the advent of e-commerce is changing the face of MSMEs in recent times. E-commerce sector plays a key role in the overall growth of the Indian economy, contributing around $800 billion to India's GDP in FY20 and employing more than 35 million people. Many small businesses are going online to tap a larger audience through listing in the e-commerce sites. However, the scale is not more as expected. Nasscom points out that majority of MSMEs hesitate to transition to online marketplaces, owing to cumbersome tax compliances under the GST law.

"The hesitation of small businesses to register under the GST law is not to evade taxes, but to avoid cumbersome and time-consuming registration and returns filing processes. This discourages MSMEs from exploring online marketplaces and slows India's vision of a digitally powered economy," it said.

The industry body for software services industry, startups and ecommerce sectors in the report submitted to the government has urged that a parity between online and offline sellers by doing away with the mandatory registration requirement under GST for small sellers that sell online and with a turnover of less than Rs40 lakh should be done. Such sellers should also be allowed to avail the benefit of composition scheme, allow sellers to register warehouses of e-commerce operators across States, based on a single physical place of business registration in the home State of the seller, Nasscom said. These recommendations are timely and if accepted, provide a fillip to the growth of Indian MSMEs.

India has set a target to create a one trillion digital economy by 2025. This will only be possible if all segments of business- small and big- adopt digitalisation. Without participation of MSMEs, such growth in digital economy is not possible. As ecommerce has the potential of transforming small businesses through using technology, the government should take steps to weed out all compliance-related issues for facilitating such participation. The country has already seen many success stories in the MSME space due to their participation in the e-commerce sector. Therefore, vexing taxation rules should be done away with for boosting growth of this critical sector.