Have
you ever come across the abbreviation MSMEs while going through the newspaper
(especially business columns) or watching business news on TV? If yes its good, if not then let us inform you
that MSMEs stand for micro, small and medium enterprises. MSMEs are considered
to be playing a very important role as they are expected to offer higher
employment by 2020.
This
sector has also been contributing to the government’s initiatives; MAKE IN
INDIA and SKILL INDIA.
The
introduction of GST (Goods and services tax) led so many questions and
confusion to rise. People had expectations, what all would be affected by it.
Difficulties faced by the MSMEs
on the introduction of GST
·
Whenever
we try to do something, we are faced with the challenges that may or may not prove
beneficial for everyone. So let’s take a look at what all situations were faced
by the MSME, when GST came into effect.
·
During
the initial times, there was a lot of confusion as everybody couldn’t grab the
fundamentals of GST
·
There
were even some loopholes in the infrastructure, which actually took little long
to stabilize, Input tax credit was also noticed to be delayed in few cases,
which ultimately affected the MSME industry.
·
Goods
and services tax disrupted the supply chains, especially in the case of small
traders, who were supplying to big manufacturing companies.
Effect on liquidity due to
Daily Sales Outstanding (DSO)
Daily
sales outstanding refers to the number of days, it takes to collect the
payments once you have supplied the goods or services.
According
to the reports published in the economic times, daily sales outstanding turned
out to be higher, after the introduction of GST registration.
Changes in the cost of
borrowing for MSMEs
Most
the MSMEs had outstanding inventories, which would be taxed under the new GST
regime. However, as these MSMEs lacked compliance infrastructure to have the
tax invoices for those inventories.
This
lead to the weak credit profile, due to which these MSMEs could not the avail
the bank loans, which ultimately pushed them to approach non-banking financing
options, And these non-banking financial entities charged a higher rate of interest
in comparison to the banks.
Effect on the sales of MSMEs
Because
of the introduction of the GST registration, there was a decline in the sales
of MSMEs. GST brought more steps, which caused delays in the whole MSME Registration procedure.
This also led to high costs, which was not under control.
Future Expectations
Once
MSMEs become the part of GST regime, these would be a part of larger compliance
climate. There would be a better level of preparedness and discipline in
conducting the business.
Our
government of India is also committed to providing support to these MSMEs,
ultimately would take a positive turn for everybody’s benefit.
These
were all the effects of GST registration on MSMEs, but in the long run it would
benefit us all.
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