Critical concerns faced by MSMEs & Exporters under GST

Critical concerns faced by MSMEs & Exporters under GST

A parliamentary panel flags issues faced by Micro, Small & Medium Enterprises, exporters under Goods and Services Tax. Micro, Small & Medium Enterprises and exporters face several critical concerns under the Goods and Services Tax Regime, affecting their compliance, cash flow, and operational efficiency. This report highlights critical concerns faced by MSMEs and exporters under GST, particularly regarding compliance, refunds, and multiple registrations.

• Simplified Compliance Framework: Small businesses struggle with hiring tax professionals or using expensive GST software. Frequent notices from the tax department due to minor discrepancies create unnecessary legal expenses. Frequent Goods and Services Tax return filings (GSTR-1, GSTR-3B, etc.) increase the compliance burden. High penalties for late filing or errors in returns. Difficulty in adapting to frequent changes in Goods and Services Tax laws and rules. The PAC has urged the Ministry of Finance to ease compliance for Micro, Small & Medium Enterprises by reducing the frequency of return filings and automating refund processes. The goal is to address prolonged refund delays and mitigate cash flow challenges.
• Complicated E-Invoicing & E-Way Bill System : Businesses with turnover above ₹5 crore must comply with e-invoicing, adding to their compliance load. Errors in E-Way Bills can result in heavy penalties and goods seizure.
• Inconsistent GST Rates & Classification Issues : Frequent changes in GST rates lead to confusion and incorrect tax payments. Disputes arise over classification of goods/services under different tax slabs (e.g., 12% vs. 18%).
• Issues with Input Tax Credit (ITC) : ITC claims are often blocked due to mismatches in GSTR-2B and GSTR-3B. Restrictive provisions like Rule 86B limit cash flow for businesses. Fake invoice frauds have led to stricter ITC verification, delaying legitimate claims.
• Fast-Track Refund Processing for Exporters: Exporters often face delays in receiving refunds for Input Tax Credit (ITC) and Integrated Goods and Services Tax (IGST) paid on exports. Refund processing is complex, requiring multiple validations, leading to working capital constraints. Inconsistent application of refund rules across tax jurisdictions. Prioritizing ITC claims related to exports within a defined timeframe. Implementing a transparent refund system with regular taxpayer updates.
• Use of AI & Data Analytics: The share of indirect taxes in total revenue receipts has declined, and the Ministry attributes this to macroeconomic factors. The Committee suggests using AI for better revenue projections and proactive strategies to stabilize tax collections. The share of indirect taxes in total revenue has fluctuated, creating uncertainty. Need for AI-driven analytics for better revenue projections and GST policy decisions.
• Burden of Multiple GST Registrations & Compliance Burdens: Businesses face administrative hurdles due to multiple registrations across states. The Committee recommends enhancing the Goods and Services Tax portal for easier management of multiple registrations. It also suggests introducing a unique business ID for tracking all registrations under one entity. Businesses operating in multiple states must register separately in each state, increasing administrative and compliance costs. The lack of a centralized system for managing multiple registrations results in errors and confusion
• Industry Consultations: Regular engagement with stakeholders is recommended to address ongoing challenges and refine Goods and Services Tax implementation.

• Limited Representation & Consultation with MSMEs : Policy decisions often do not consider ground-level difficulties faced by Micro, Small & Medium Enterprises. The government needs to improve engagement with industry bodies to resolve sector-specific challenges.

The Ministry of Finance makes to ease compliance solutions & recommendations:

These recommendations, if implemented, could significantly reduce compliance burdens and improve the efficiency of Goods and Services Tax administration for Micro, Small & Medium Enterprises and exporters. & suggests easier compliance, fast tracking refunds.

• Simplified return filing (e.g., quarterly filing for all MSMEs).
• Fast-track refund processing, especially for exporters.
• Centralized registration management on the GST portal.
• Use of AI & automation to streamline compliance & tax collection.
• Regular consultations with MSMEs to refine GST implementation.