The real hero in GST is the small entrepreneur…(How did this change in sentiment happen?)

One of the most unfortunate narrative during demonetisation was how the informal sector full of small businesses is this dishonest tax cheating fella. History of tax tells you how it is big corporations which are the real culprits in this tax game. There was nothing more ironical than see likes of CEOs of Silicon Valley giants telling us how digital world will make us more tax compliant. Really? Why not look withing first? It was also really disappointing to see not one CEO of a top Indian firm defending the Indian SME sector.

With GST implementation, the sentiment seems to be changing. Not sure what has resulted in the same. One just pointed to a superb interview of how SMEs are reacting to the challenges of GST with very limited resources at disposal. Sudipto Banerjee and Sonia Prasad of EPW have a similar piece detailing how GST has led to disruption in SME sector.

Though this piece from Sundeep Khanna of Mint takes the cake for calling the small businesses as heroes:

Despite the massive disruption to small and medium enterprises (SMEs) across the country, anecdotal evidence suggests most of them broadly support the goods and services tax (GST). Yes, they do have their grievances about it. But these relate to the abnormalities in the rate changes, the complexity and cost of adhering to it and the haste with which they have been forced to adopt it.

While the rates have come down on many products, there are others where they have shot up overnight. Paint, shaving cream, chocolates and ice creams now attract the highest tax slab of 28% while phenol and detergents, both items of household use, are up to 18%. It isn’t the extent of the hike as much as explaining the consequent price hike to customers that has most traders worried.

At the retail end, the problems are compounded by the complexity of computing it.

A kirana shop owner selling several disparate items to a customer has to charge separate GST rates for each of the items and then add them up for the final bill. It is an onerous and time-consuming job, particularly in a business where a quick turnaround of customers is very important.

Small businesses have also been hit by their own partial unpreparedness. While it is easy to be critical of small businessmen and women for not anticipating the changes and preparing for them, let’s not forget that the various political formulations in the country took 17 years to complete the process that started in 2000 when the Atal Behari Vajpayee government first set up an empowered committee to deliberate on the issue.

It isn’t simple for a five-man operation running a business in footwear to suddenly register, switch to GST format and then institutionalize the rigor and computing skills needed to maintain it. Already opportunistic consultants are on the prowl, offering to handhold traders in their migration to the new tax regime. These are additional costs, unaffordable at current levels of profitability.

The small player barely has a voice and usually supports whatever comes their way.  Whatever the opposition seldom gets heard and so one just continues working around their business. They form 90% of Indian economy but still gets no voice.

Infact you travel around smaller cities and one is also amazed by how much philanthropy they do collectively. There are many schools, gardens, low cost guest houses etc. which have  been built by these small businesses. So, we should think twice before giving them the usual labels as they are no where close to the truth…

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One Response to “The real hero in GST is the small entrepreneur…(How did this change in sentiment happen?)”

  1. Muhammad Anees Says:

    How to find data on direct and indirect taxes before Demonetization and after to analyse it using Event Study Method?

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