New Delhi: The goods and services tax (GST) continues to confound small players despite its drastic overhaul last week, which is being billed as "course correction" ahead of the Gujarat polls.
Small businesses, unregistered or under the composition tax scheme, are neither able to get input tax set-offs nor give the set-offs to the larger players buying from them. The composition scheme imposes a flat 1 per cent levy on turnover up to Rs 1.5 crore.
"This has affected small businesses in SME manufacturing hubs such as Delhi, Ludhiana, Coimbatore and Surat and elsewhere as it has shrunk their markets and reduced their margins.
"While his bigger competitor gets tax set-offs for the raw material purchased, he cannot get that, so his produce becomes costlier.
"And since he cannot give input tax credit, the larger manufacturer is reluctant to buy from him," said former CBEC chairman Sumit Dutt Majumder.
The inability of large manufacturers to claim input GST credit from the small units have forced them to jettison the smaller players leading to lakhs of small units employing 4-5 workers shutting shop or cutting down on work.
The rule directing the larger players to pay the GST for the small units if they want to avail themselves of the set-offs from their purchases from the latter has also worked against the small businesses.
"No large firm wants to be saddled with extra tax compliance cost. It's (presumptive tax) a good principle but is impractical," said Swapan Sarkar FCA and chairman of the finance committee of the Indo-American Chamber of Commerce.
"It's a case of double jeopardy... one would imagine these are issues which future GST Council meetings will have to analyse and resolve, but till then small business remains hit," said Majumder.
Just after DeMo
The CMIE and other estimates place job losses because of demonetisation at 1.5-2 million, mostly in the small-scale sector. While no such studies are there for the GST, businessmen believe the complex levy was introduced just as they were limping back to normalcy from demonetisation.
"Small scale industry remains confounded by the GST. The composition scheme addresses the needs of shops and small traders, but not that of small manufacturers who are slowly being pushed out of business," said Manish Seth, managing director of United Agencies and leader of 1,000-member Refrigeration & Air Conditioning Traders Association.