GST Council Deadlock – A Blessing in Disguise for SMEs?

India has been talking about the Goods and Services Tax (GST) ever since it was first proposed in 2006. Finally, on July 1, 2017, it became a reality. The GST is a tax reform that aims to simplify and modernize the indirect taxation system in India by replacing multiple taxes like excise duty, service tax, and value-added tax (VAT) with a single tax.

The GST Council is the body responsible for making recommendations to the Centre and the states on all matters related to the GST. It is comprised of the Union Finance Minister and the Finance Ministers of all the states. The GST Council meets regularly to take decisions on various issues related to the GST, such as tax rates, exemptions, and revenue sharing between the Centre and the states.

However, over the past few months, the GST Council has been in a deadlock over several issues, including the compensation to states, the division of revenue, and the inclusion of petroleum products and alcohol under the GST. This deadlock has caused a lot of anxiety among businesses, particularly small and medium-sized enterprises (SMEs), who have been struggling to cope with the new tax regime.

But is the GST Council deadlock really a curse for SMEs? Let's find out.

The Blessing in Disguise

Firstly, the GST Council deadlock has prevented any major changes to the GST, which is a good thing for SMEs. The GST is still in its infancy, and any major changes to the tax system could cause more confusion and uncertainty for businesses. SMEs are already struggling to understand the complex GST rules and are facing compliance issues. Any further changes to the system could exacerbate the situation.

Secondly, the deadlock has provided SMEs with some much-needed relief. The GST was introduced with the aim of simplifying the tax regime and reducing the burden on businesses. However, the current GST rules have been criticized for being too complex and burdensome, particularly for SMEs. The deadlock has prevented any major changes to the tax system, which means that SMEs can continue to operate under the current rules.

Thirdly, the deadlock has given SMEs more time to prepare for the GST. When the GST was first introduced, many SMEs were caught off guard and struggled to adapt to the new tax regime. The deadlock has given these businesses more time to understand the GST rules and to update their accounting systems to comply with the new tax system.

The Flip Side

However, the GST Council deadlock is not all good news for SMEs. The most significant issue arising from the deadlock is the delay in GST refunds. GST refunds are critical for SMEs, particularly those in the export sector, as they help to ease cash flow problems. However, due to the deadlock, many SMEs have not received their GST refunds, which has caused a lot of financial stress.

The delay in GST refunds is not the only problem. The GST Council deadlock has also led to uncertainty about the future of the GST. SMEs need stability and predictability to plan for the future. The deadlock has created a lot of uncertainty and has made it impossible for businesses to plan for the future.

The Way Forward

So, what is the way forward for SMEs? Firstly, the GST Council needs to resolve the deadlock as soon as possible. The delay in GST refunds and the uncertainty about the future of the GST are causing a lot of stress for SMEs. The Council needs to find a solution to the issues that are causing the deadlock and ensure that the GST is stable and predictable.

Secondly, SMEs need to focus on adapting to the current GST rules. The GST is here to stay, and businesses need to adapt to the new tax regime. SMEs need to invest in updating their accounting systems and training their staff to ensure compliance with the GST rules.

In conclusion, the GST Council deadlock is a blessing in disguise for SMEs in some ways. It has prevented any major changes to the GST, which is a good thing for businesses struggling to cope with the current tax system. However, the delay in GST refunds and the uncertainty about the future of the GST are major concerns for SMEs. The GST Council needs to resolve the deadlock as soon as possible and provide stability and predictability to businesses.