Psychological Impact of Gst on Small Business in India

India is a country rich in diversity, known for its warm hospitality and a conducive environment for businesses, both large and small. According to a survey conducted by the Reserve Bank of India (RBI), there are approximately nine million small and medium enterprises (SMEs) operating in the country. However, the perception of SMEs often differs from reality. In challenging circumstances, the importance of SMEs becomes evident. Research indicates that for every large corporation, there are numerous SMEs contributing to the economy. Consequently, this sector's direct contribution to the economy stands at around 7%, with an indirect contribution reaching as high as 30%.

The Psychological Impact of GST on Small Businesses

The implementation of the Goods and Services Tax (GST) has raised significant concerns regarding the sustainability of small businesses. Approximately 70% of SMEs fall below the GST threshold limit, meaning they are not eligible for input tax credits. Previously, businesses that operated across multiple states were required to register for sales tax or Value Added Tax (VAT) in each state, complicating operations due to differing tax regulations. This led to a cumbersome registration process and an uncontrolled chain of cascading taxes. However, under the GST regime, registration is centralized, and tax rules are uniform across all states.

Indian society is a tapestry of diverse cultures, religions, and castes, which influences the business landscape. Many small enterprises are family-run, perpetuating a cycle where children often follow in their parents' footsteps. According to an analysis by The Economic Times, a mere 10 families control over 70% of the business sector, while just 2% of the population holds 58% of the country's wealth. Despite these disparities, India is often hailed as a land of startups and SMEs.

Small businesses typically operate in a traditional manner, relying heavily on physical storefronts. The uniform implementation of GST has caused anxiety among many small business owners, leading to sleepless nights. In my research, I spoke with over 100 small business owners in Crossing Republic, Ghaziabad, and Greater Noida West, as well as two senior representatives from a company specializing in billing software. Their insights were invaluable and formed a crucial part of my study.

GST, heralded as the most significant tax reform in India, operates under the principle of “One Nation, One Market, One Tax.” This long-awaited movement has finally materialized, eliminating inter-state trade barriers and creating a unified market for 1.3 billion citizens. The rationale behind implementing GST across 29 states and 7 union territories is to create a win-win situation for all stakeholders. Manufacturers and traders would benefit from streamlined tax filing, transparent regulations, and simplified accounting. Consumers would enjoy lower prices for goods and services, while the government would see an increase in revenue.

However, despite the potential benefits of GST, my research indicates that many people are unprepared for this sweeping change. Confusion reigns in the minds of ordinary citizens. Although the intention behind GST is noble and recognized by global entities, the on-ground reality remains challenging. Continuous meetings of the GST Council often yield varying results, especially in election periods, when decisions may be influenced by political considerations.

Challenges Faced by Small Businesses Post-GST

Small businesses face a myriad of challenges following the implementation of GST. The psychological impact of these challenges can be profound. Below is a list of some of the key challenges that small businesses are encountering:

• Compliance Burden: The requirement for comprehensive record-keeping and tax filing has increased the administrative workload for small business owners.
• Cash Flow Issues: Delays in receiving input tax credits can lead to cash flow problems, making it difficult for small businesses to manage their finances effectively.
• Understanding GST Regulations: The complexity of GST regulations often overwhelms small business owners, leading to confusion and mistakes in compliance.
• Increased Competition: A unified market means increased competition for small businesses, which can be daunting for those accustomed to local markets.
• Psychological Stress: The fear of penalties and the burden of compliance can lead to significant stress and anxiety among small business owners.

Conclusion

In conclusion, the implementation of GST has brought about a significant transformation in the Indian tax landscape. While it holds the promise of creating a unified market and streamlining processes, the psychological impact on small businesses cannot be overlooked. Many small business owners grapple with compliance challenges, cash flow issues, and the fear of penalties. As the country continues to adapt to this new tax regime, it is crucial to provide support and resources to help small businesses navigate these changes effectively.

Ultimately, the success of GST will depend on its acceptance and effective implementation at all levels of business, particularly among the small enterprises that are the backbone of the Indian economy.

References:

1. Reserve Bank of India (RBI) Survey on SMEs

2. The Economic Times Analysis on Business Ownership

3. Government Reports on GST Implementation

4. Research Papers on the Impact of GST on Small Businesses