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Tuesday, November 5, 2024

GST Woes for MSMEs: A Crucial Election Issue

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The rollout of the Goods and Services Tax (GST) over six years ago under Prime Minister Narendra Modi’s administration has left a lasting impact on India’s economic landscape, particularly among micro, small, and medium enterprises (MSMEs). As the nation approaches the Lok Sabha elections, the GST regime emerges as a critical issue that political parties must address to support the MSME sector, pivotal to India’s economic health and employment landscape.

The GST Challenge for MSMEs

The GST system, designed to unify the Indian market and streamline the tax structure, has inadvertently placed a significant burden on MSMEs. Many of these businesses, often single-person operations, find themselves entangled in a web of GST compliance challenges without the necessary resources or understanding to navigate the complexities. This situation has been particularly pronounced in MSME clusters across various states, including Tamil Nadu.

The Ripple Effect of GST on MSMEs

The intricate Goods and Services Tax slabs have, over time, led to a paralysis within the MSME sector, affecting businesses that are technically exempt from GST due to low turnover but still engage with larger, GST-registered industries. The requirement for minimum documentation places an undue burden on these smaller units, leading to a loss of business and, ultimately, a negative impact on the millions reliant on the MSME sector for their livelihood.

Voices from the Ground

Stakeholders across the board, from national convenors of manufacturing organizations to presidents of industrial associations, have voiced their concerns and demands regarding the GST’s impact on MSMEs.

In Tamil Nadu and Punjab, for instance, industrial associations have actively submitted their GST-related demands to election candidates, highlighting issues such as the high taxes on labour charges in the engineering sector and the lack of transparency and liquidity due to the current tax structure.

Specific Demands and Representations

Labour Charges

In Coimbatore, the reduction of GST on job work undertaken by MSMEs is a key demand. The initial rate of 18% was eventually lowered to 12% after numerous representations, yet stakeholders argue for a further reduction to 5% or nil.

Pending Refunds

The textile industry, particularly powerloom associations in Tamil Nadu, faces a critical issue with pending GST refunds amounting to nearly ₹1,200 crore, causing significant business disruptions.

Agricultural Sector Impact

The hike in GST for agricultural pump sets from 12% to 18% has directly affected demand, placing additional financial burdens on farmers.

Also read: Tamil Nadu MSMEs Call for Urgent Action Ahead of Lok Sabha Elections

Election Season: A Time for Change

As political parties canvas for support, the GST issue remains a hot-button topic within MSME circles. There is a strong call for parties to prioritize MSME concerns in their election manifestos, recognizing the sector’s vital role in the nation’s economic fabric.

The Goods and Services Tax regime, while aimed at economic reform, has inadvertently posed significant challenges for MSMEs, underscoring the need for thoughtful policy revisions to support this crucial sector. As India gears up for the Lok Sabha elections, addressing the GST concerns of MSMEs could be a game-changer, ensuring the stability and growth of a sector that is fundamental to the nation’s prosperity.

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