Small businesses and MSMEs have been the most significantly influenced segment due to the big economic reforms, such as the Goods and Services Tax (GST). On 23 August 2019, the Hon’ble Finance Minister Nirmala Sitharaman announced a slew of measures to boost the economy at a press meet. These include quite a few that provide relief to MSMEs and some on GST.
The objective of the press meet was to revive the economic growth of India. A data study by the World Economic Outlook – IMF states that the GDP growth rate has tumbled down in the last three years since 2016 by approximately 2%.
The data study further sighted an uptick in the GDP growth rate levels for the current year 2018-19, by a quarter of a percentage.
With regards to the GST announcements made at Friday’s press meet, FM vowed for a reduction in the number of GST returns to be filed along with its simplification. She did not hint at a GST rate cut for the auto or biscuit industry.
The next GST Council may address these rate cuts. Currently, the entire auto sector faces a significant sales drop. Notably, the sales of passenger vehicles dropped by 21.56% in April-July 2019 over the same period last year, as per a release dated 13 August 2019 by the Society of Indian Automobile Manufacturers (SIAM).
Both these sectors are adopting layoffs as the means to cut costs. The major contributor to slow sales is the imposition of high GST rates of 28% and 18% respectively.
On the MSME front, getting loans could be made easier, and processing is going to be faster through a loan collaboration initiative. FM introduced co-origination of loans by PSBs jointly with NBFCs.
It ensures a last-mile connect of PSBs and NBFCs benefitting many MSMEs, small traders, self-help groups and microfinance institutions. Also, a one-time settlement (OTS) policy will be launched for MSME borrowers to settle their overdue. The working capital loans will get cheaper by linking the repo rates to interest rates together with an additional capital infusion to PSBs.
A time limit has been set for the disposal of GST refund applications for MSMEs. FM promised that all MSMEs would be paid for the pending GST refunds within the next 30 days. Further, she stated that all future GST refunds should be paid within 60 days from the application date.
Furthermore, the lawmakers will amend the Micro, Small and Medium Enterprises Development Act, 2006 (MSMED Act) to give a single definition to ‘MSME’.
Currently, MSME definition is split into three slabs of investment for defining each of the micro, small and medium enterprise. It is based on the amount invested in plant and machinery separately for goods and services.
Besides these, GSTN will partner with Trade Receivables Discounting System (TReDs) that finances registered MSMEs by discounting their bills. GSTN will certify such GST compliant invoices on which such MSME vendor has deposited tax, but their buyers have delayed making payments to them.
The initiative results in faster action through TReDs. It also aims to resolve the gap in the new GST return system in cases of delayed payments by a monthly return filer who buys supplies from a quarterly return filer.
It will push such MSME vendors to be GST compliant. Since uploading GST invoices regularly will become vital to be eligible for bill discounting via TReDs.
FM is likely to meet GSTN on 25 August 2019 to discuss the possible improvements on the GST systems. Accordingly, we can expect more such announcements in the upcoming weeks.