Why Leveraging Automation for GST Compliance for MSMEs is Crucial?

Technology should be looked upon as a major catalyst for rejuvenating the MSME sector which shall not only be GST compliant but shall cherish the real benefits, as envisaged by the Govt.

Photo by Joshua Sortino on Unsplash

Micro, Small and Medium Enterprises form the core of the Indian business landscape. The MSME sector is one of the fastest-growing sectors and contributes nearly 30% of India’s GDP. But the last year has seen them fighting on multiple fronts – shortage of labour, rise in input prices, and increased GST compliance. It has been a challenging ride for them.

The GST regime focuses more on the benefit that it entails on businesses & economy as a whole, more particularly bringing in transparency & expanding the tax network. However, GST with its tail of compliances has hit hard to MSMEs than other organised businesses in the country. For example, mandating the E-billing system for businesses with a turnover of ₹ 50 crores will be an added onerous compliance, for which the MSMEs don’t seem to have been prepared for.

The size of the MSME sector in India

As per the MSME Ministry’s FY20 annual report, India is home to around 6.33 crore MSMEs. The country has approximately 5,000 medium enterprises, 3.31 lakh small enterprises, and 6.30 crore micro-businesses. That means micro and small businesses constitute over 99% of the MSME sector.

MSMEs continue to suffer despite several measures taken by the government

Most of the MSMEs lack funds and resources. In most cases, they perform everything independently. The introduction of new regulatory measures by govt for their relief is beneficial for them in long term, however, MSMEs tend to find it difficult to adapt those regulations in a shorter deadline. Further improving the Grievance Redressal System can enhance the support given by govt. and help to address various issues faced by the MSMEs.

Current issues faced by the MSME sector in GST compliance and taxation

The government is not responsible for bearing the credit risks of taxpayers. The revenue department will receive tax only when the seller gets his payment and the buyer claims the ITC.

Even though the implementation of GST has tried to ease the accounting scenario for the MSMEs, it has shown very few positive impacts. As the norms change frequently, it has been almost impossible for small businesses to cope with GST compliance and taxation without facing difficulties.

Here are some of the persisting taxation and GST compliance issues haunting the MSME sector in the country –

Mandatory E-billing is a good initiative, but has its own set of challenges for MSMEs

Previously, businesses with over ₹ 100 crore turnover had to follow the E-billing system in India. But as the government brought down the lower limit to 50 crores, several medium businesses came under the category.

The complexities of E-billing system have high chances of human errors, which might hamper an already stressed MSME sector. It can add to the woes in managing working capitals flow, which can be a major blow for the business. This might ultimately lead to significant losses.

More compliance norms would also mean more complex Accounting & compliance

Business owners are still reeling under the negative impacts of the pandemic. The second wave has been even more severe, and the repercussions can be far worse on the business landscape.

Chandrakant Salunkhe, Founder and President, SME Chamber of India, mentions that even one year after the Coronavirus pandemic, only 45% of the labourers are back to work. It leaves a massive void, especially in the MSME sector. The increased tax compliance will only worsen their situation.

Role of Technology in mitigating the impact

Automation has gained a lot of traction all over the world and across various industries. It has taken charge of the repetitive tasks, allowing the manual workforce to focus on the vital aspects, and accomplish complex tasks. Its inculcation in the MSMEs can be very beneficial, given that they operate with limited resources.

The advent of cloud computing, AI, Big Data, blockchain, IoT, and several other cutting-edge technologies will help the MSMEs solve their persisting taxation and GST compliance issues and will enable them to optimise their resources.

The most significant advantage of automation is its ability to streamline processes. If the situation is favourable, MSMEs can even resort to hyper-automation (a combination of advanced techs, such as AI, ML, and OCR) to augment their resources and achieve more.

Hyper-automation will not only open a lot of opportunities for MSMEs but will solve their taxation and GST compliance issues

Not that GST would not have its benefits to businesses, but increased compliances without enabling environment viz. Use of advanced technology, yet affordable, is an area of concern for the sector that needs immediate attention for all in the spectrum viz. Govt, Tax Platform, Accounting & Professional bodies, Business Association & more particularly the tech solution providers. An enabling gradual shift towards automation and choosing the right tools along the way can solve several issues faced by businesses.

It will not only enable the MSME sector to regain its lost ground but will also help acceleration in its growth rate. Overall, the technology should be looked upon as a major catalyst for rejuvenating the MSME sector which shall not only be GST compliant but shall cherish the real benefits, as envisaged by the Govt.

The blog has been authored by Anand Jajodia, Co-founder of AlignBooks

DISCLAIMER: The views expressed in the blog are solely of the author and TheSMEIndia.com does not necessarily subscribe to it. TheSMEIndia.com will not be responsible for any damage caused to any person/organisation directly or indirectly