Have you ever come across the abbreviation MSMEs while going through the newspaper (especially business columns) or watching business news on TV? If yes its good, if not then let us inform you that MSMEs stand for micro, small and medium enterprises. MSMEs are considered to be playing a very important role as they are expected to offer higher employment by 2020.
This sector has also been contributing to the government’s initiatives; MAKE IN INDIA and SKILL INDIA.
The introduction of GST (Goods and services tax) led so many questions and confusion to rise. People had expectations, what all would be affected by it.
Difficulties faced by the MSMEs on the introduction of GST
- Whenever we try to do something, we are faced with the challenges that may or may not prove beneficial for everyone. So let’s take a look at what all situations were faced by the MSME, when GST came into effect.
- During the initial times, there was a lot of confusion as everybody couldn’t grab the fundamentals of GST
- There were even some loopholes in the infrastructure, which actually took little long to stabilize, Input tax credit was also noticed to be delayed in few cases, which ultimately affected the MSME industry.
- Goods and services tax disrupted the supply chains, especially in the case of small traders, who were supplying to big manufacturing companies.
Effect on liquidity due to Daily Sales Outstanding (DSO)
Daily sales outstanding refers to the number of days, it takes to collect the payments once you have supplied the goods or services.
According to the reports published in the economic times, daily sales outstanding turned out to be higher, after the introduction of GST registration.
Changes in the cost of borrowing for MSMEs
Most the MSMEs had outstanding inventories, which would be taxed under the new GST regime. However, as these MSMEs lacked compliance infrastructure to have the tax invoices for those inventories.
This lead to the weak credit profile, due to which these MSMEs could not the avail the bank loans, which ultimately pushed them to approach non-banking financing options, And these non-banking financial entities charged a higher rate of interest in comparison to the banks.
Effect on the sales of MSMEs
Because of the introduction of the GST registration, there was a decline in the sales of MSMEs. GST brought more steps, which caused delays in the whole MSME Registration procedure. This also led to high costs, which was not under control.
Once MSMEs become the part of GST regime, these would be a part of larger compliance climate. There would be a better level of preparedness and discipline in conducting the business.
Our government of India is also committed to providing support to these MSMEs, ultimately would take a positive turn for everybody’s benefit.
These were all the effects of GST registration on MSMEs, but in the long run it would benefit us all.