One of the unstated objectives for introducing GST in India was to get as many business entities as possible into the tax net. Due to a very loose definition of service in the erstwhile regime, a good portion of service providers were not sure whether the tax would apply to them or not.
Under the Central Excise regime, entities with a turnover up to ₹150 lakh did not have to get into the nitty-gritty of the concept of manufacture, valuing the goods they manufactured and paying excise duty, as they enjoyed an exemption through Notification No 8/2003. All these enterprises had to come into the GST regime due to the threshold limit being fixed at ₹20 lakh.
In a clear attempt to incentivise entities to register under GST, the CGST Act also had a Section 9(4) which mandated that in case GST-registered entities purchased from non-GST entities, they would need to pay the applicable GST on the reverse charge mechanism. Later, a Notification was issued to provide an exemption of ₹5,000 per day for such purchases. Due to issues in implementing and following this provision, it was stopped in October 2017 and has been deferred till September 2019.
MSME outreach
Recently, the Prime Minister launched a support and outreach programme for micro, small and medium enterprises (MSMEs) sector which revolves around 12 key initiatives on five key aspects that the sector needed — access to credit, access to market, technology upgradation, ease of doing business, and a sense of security for employees. The support and outreach programme commenced with a bang — the launch of a portal that promises 59-minute in-principle loan to enable easy access to credit for MSMEs for loans up to ₹1 crore. In a clever move, it was clarified that the link to the loan portal will be made available through the GST portal. It was followed by an announcement of a 2 per cent interest subvention for all GST-registered MSMEs, on fresh or incremental loans. For exporters who receive loans in the pre-shipment and post-shipment period, there would be an increase in interest rebate from 3 per cent to 5 per cent.
The government has attempted to get MSME entities onto the GST bandwagon by providing them assistance where they most need it — financing. Since getting a loan from a bank these days is a rarity, MSMEs need new sources of financing and the government has opened a window for them. Yet, MSMEs may not get very excited about the 59 minute loan facility — they will certainly want to know the interest they would have to pay after the subvention. As financing costs can hurt the profit and loss account of MSMEs, these entities would be prepared to wait for 59 days to get a loan at a lower rate if available. The government may have missed a trick in not announcing a special interest rate for these loans instead of a subvention.
With a composition scheme in place and a proposed system of requiring enterprises with turnover up to ₹5 crore to file only quarterly returns, MSMEs need not worry too much about compliance costs under GST. Non-MSME enterprises would be worried about how the moody GST portal will behave after it has a financing window.
MSMEs would now need to do a SWOT analysis of getting onto the GST regime vis-à-vis their need for financing. Step by step, the government seems to be getting them into a GST chakravyuha from which all exits are gradually being closed.
The writer is a chartered accountant.
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