The Goods and Services Tax (GST) is a value-added tax that is levied on goods and services. It is generally charged to the consumers at the point of sale on the purchase of the product/services and paid to the Government by the company selling its goods and services.
GST has been formed to replace all the multiple indirect taxes which were earlier levied by the government. The main aim of the government for implementing GST is to ease the tedious taxation system and also ensure that everyone abides by the tax payment.
Also, the companies onboard the GST platform helps stabilize the economy of the country and also making the economy powerful & stronger.
Impact of GST on businesses
Earlier, a company had to source products from various states, and they were liable to pay several different state taxes owing to which they had to invest heavily owing to which their business loan requirement was high. With GST in the picture, the company is not required to pay various taxes while sourcing goods from various stated. The company would save a lot on the taxes and can accordingly lessen their MSME loan limit.
Let’s study a few of the impacts of GST on businesses:
New Business Loans/ SME Loans:
A company needs funds to operate but Micro, Small, and Medium Enterprises (MSMEs) owing to the non-availability of funds find it difficult to operate and grow. Thus, there arises the need for SME loan/MSME loan. After the introduction of GST, it is mandatory for every company to be GST-compliant and have a valid GSTN to apply for a business loan/new business loan.
SMEs having a valid GSTN has higher chances of obtaining SME loan/new business loan from the financial institutions.
Ease of SME Formation:
Before GST was implemented, a company had to pay indirect taxes to register their business and this would vary across various states. Moreover, a company was required to understand the indirect taxes across various states and also its underlying rules before planning to formulate its business. This increased the burden on SMEs as it led to an increase in SME loans.
With the implementation of the GST system, it has become easy for SME to start their own business venture or expand their business.
Streamlining of the accounting system:
Owing to a company being levied by various taxes, it had to invest to maintain and record these taxes in the account books. It was a tedious as well as cumbersome task and to maintain this, a company needed adequate manpower to look after the details of the taxes being paid by the company. This put an added cost on the company.
With GST, the entire process of maintaining the accounts has been streamlined and it has become easy since then to maintain & record the accounts.
Domestic products vs. imported products:
Before the implementation of GST, taxes were levied at the source of the product and not at the point of sale. With GST, the taxes are levied at the point of sale making domestically manufactured products have the same cost or be on par with the imported. This gave a common base for the domestically manufactured product to compete fairly with the imported source.
Increase in the cashflow:
Earlier, a company had to pay an import duty of 14% while purchasing raw material whereas now they have to pay 18% GST owing to which the investment requirements has increased. Thus, there is an increase in the new business loan which a company has to avail to fund its requirement of raw material.
A company has to state GST it has to pay on the procurement of the raw material which can be balanced out against the tax it collected ta the point of sale of products. GST system makes the company profitable and ensures smooth & increases the flow of income.
(1) What is the impact of GST on a business loan?
Any type of loan – be it a new business loan or SME loan or MSME loan in 59 minutes, GST of 18% is levied onto it which increases the borrowing cost to the company.
(2) What is MSME loan in 59 minutes?
A new business loan of up to Rs. 1 crore is offered to start-up companies or SME loans for already existing companies and the approval or disapproval of this business loan is granted within 59 minutes from the application time.
(3) Is GST mandatory to apply for MSME loan in 59 minutes?
Yes, a company needs to present the financial institutions with a GST certificate and a valid GST ID.
(4) Does all SME have to be GST compliant?
Only SMEs having a turnover of more than Rs. 20 lakhs need to file for GST registration.
(5) Is GST applicable on the SME loan?
GST is basically charged on the loan processing fees.