Big reform hits small businesses

The fine-tuning of the Goods and Services Tax structure is far from over, which has unsettled the informal sector and made the life of micro, small and medium enterprises (MSMEs) difficult. The Tribune takes stock of the ground situation in the region on the first anniversary of the GST regime.

The industry in the northern region has more than 3.5 lakh MSMEs. Most of them have modest income and limited resources. A majority of them dread documentation and paper-works. While some afford to hire professionals for managing their books, clueless others prefer to  operate outside the GST system only to avoid its cumbersome processes and compliance cost.

MSME anguished

Small businessmen prefer to operate outside the GST system. For example, most of the shops selling home decor items including mattress, furniture and bathroom fixtures in a city like Chandigarh do not accept credit cards. They demand cash and try to convince the customer about huge savings of Rs 1,400 on products that would otherwise cost Rs 6,500 with the GST. 

Besides the fear of filling onerous GST returns, high tax rates are major deterrent for both, the buyer and the seller. The recently introduced e-way bill is another major issue for small businessmen. "The government must exempt generation of e-way bill within the municipal limit, as has been done in Gujarat and also double the exemption limit to Rs 1 lakh like Delhi," a Panipat-based carpet manufacturer said. He also demanded that the Centre must resume duty drawback rates to boost exports.

Small exporters, who are facing tough competition from China in the international market, face severe fund crunch due to delay in the input credit and refunds under the GST system. "Our working capital gets stuck due to delays in refunds. In such a scenario it is very difficult to carry business," PHD Chamber Chairman RS Sachdeva said.

Industrialists’ woes

Major players in the organised sector criticise the government for its failure in controlling the illegitimate businesses that mushroomed after the GST rollout. "Number-2 businesses worth several thousand crores have mushroomed that are completely outside the GST system. The entire value chain -- right from the raw material suppliers to the manufacturers of the finished products -- evade GST," an industrialist from Mohali said requesting anonymity. 

Industry bigwigs, however, hailed the reform. "Notwithstanding the initial hiccups, overall benefits of GST are getting visible with the passage of time," Confederation of Indian Industry Chairman-Northern Region Sachit Jain said.

The most important benefit has been a reduction of cost across the entire value chain with elimination of cascading effect of taxation, he added.

"The government should keep on addressing issues confronted by the industry on regular basis for smooth transition," Apparel Export Promotion Council Chairman HKL Magu said.

Missing sportsmanship 

The Jalandhar-based sports industry is one of the worst sufferers. The cluster has witnessed a sharp decline in its turnover and profitability.  As a result, several manufacturers have become importers of sports goods supplied from China. 

Small units are hit by an abnormal increase in tax. Earlier, goods attracted only 5-6 per cent VAT, but now 18 per cent GST makes their businesses unviable, said Manu Mahajan, manufacturer of gymnastic equipments. "We had a very good domestic market, but with GST, everything has got changed," Mahajan said. 

Job market is shrinking as manufacturers are now becoming traders, Ravinder Dhir, President of Punjab Khel Udyog Sangh said.  "I would say that GST is introduced to only help big and organised manufacturers. No heed has been paid to the demands of tiny manufacturers," he said.

Bumpy ride 

One year of the new regime has not been an easy ride for the bicycle industry of Ludhiana because of inverted duty structure. Bicycle attracts a flat 12 per cent GST, but some of its parts are taxed at 18 per cent. 

Different tax rates are confusing for the bicycle industry; tyre and tube are taxed at 5 per cent, raw materials such as plastic are taxed at 18 per cent, but bicycle is taxed at 12 per cent. 

Electric resistance welded pipes, cold rolled strip, hot rolled coil, paints and plastic parts, used in manufacturing of cycle parts,  are taxed at 18 per cent.

"We buy raw materials at 18 per cent GST and sell cycle parts at 12 per cent and we are bearing a loss of 6 per cent," said Gurmeet Kular, President, Federation of Industrial and Commercial Undertaking. 

Kular said that the GST refund is another major issue. The industry has not received a single refund of GST in  almost a year. 

Seamless apparel 

It is, however, a good change, says Ajit Lakra, President, Ludhiana Knitters Association.   It is, however, subject to some simplifications, he added. 

Due to GST, there are no barriers for transportation of goods across the country. It saves time and cost. It has removed lot of cascading effect of taxes on many products, giving relief to consumers as well as manufacturers, he said. 

There is , however, a need to expedite refunds of GST to exporters, he said. 

GST system will prove very useful to the trade and industry in the long run,  it will indirectly increase the income tax collection  also because GST makes  unaccounted business difficult.

Troubled farms 

The agriculture  sector thinks otherwise as farm machinery attracts 12 per cent GST. Earlier, there was no duty on farm machines in several states. "The move to impose 12 per cent duty on farm machinery has hit the sector. But it's difficult to quantify it," Preet Agro Industries General Manager Shamsher Singh said. The industry has requested the government to reduce the duty on agriculture machinery to 5 per cent in the interest of farmers and has also demanded to lower the tax on implements.

Taxing time 

Professionals are also jittery about lack of infrastructural support in the new system. Mohit Aggarwal, a Ludhiana-based taxation lawyer says that the site often  crashes when work-load is more. 

There is no proper infrastructure. Rules change frequently. The government gives no opportunity if a person commits any mistake in filing returns, he said.

— Inputs from  Vijay C Roy (Chandigarh), Aakanksha N Bhardwaj (Jalandhar), Manav Mander & Shivani Bhakoo (Ludhiana)