The Goods and Services Tax (GST) regime, implemented in India on July 1, 2017, was envisioned as a landmark reform to streamline the indirect tax system, unify the market, and spur economic growth. Since its inception, GST has significantly transformed the landscape of Indian taxation, bringing both opportunities and challenges. However, as the economy evolves, so must the policies that govern it. One pressing issue that demands immediate attention is to increase GST exemption limit for small businesses. Currently set at ₹20 lakhs for services, there is a growing consensus among industry stakeholders that this threshold should be raised to better accommodate the needs of micro and small enterprises.
Small businesses form the backbone of the Indian economy, contributing significantly to employment and GDP. According to the Ministry of Micro, Small and Medium Enterprises (MSME), there are over 63 million MSMEs in India, providing employment to around 111 million people. Despite their substantial contribution, these businesses often operate on thin margins and face numerous challenges, including compliance burdens and cash flow issues. Increasing GST exemption limit to ₹75 lakhs would provide much-needed relief, allowing them to focus more on growth and less on regulatory compliance.
One of the primary benefits of increasing GST exemption limit is the reduction in compliance costs. For many small businesses, the administrative burden of adhering to GST regulations is disproportionately high compared to their larger counterparts. The current threshold requires them to maintain detailed records, file multiple returns, and navigate the complexities of the GST framework. This not only diverts valuable time and resources away from core business activities but also necessitates additional expenditure on accounting and compliance services. By raising the exemption limit to ₹75 lakhs, a significant number of small businesses would be relieved from these onerous requirements, enabling them to reinvest their resources into expanding their operations and improving their competitiveness.
Moreover, increasing the GST exemption limit would enhance the ease of doing business, a critical factor for fostering entrepreneurship and innovation. India has made notable strides in improving its business environment, as evidenced by its jump in the World Bank’s Ease of Doing Business rankings. However, there remains room for improvement, particularly for small enterprises. Simplifying tax compliance by raising the exemption threshold would reduce bureaucratic hurdles and encourage more individuals to start and sustain their own businesses. This, in turn, would stimulate job creation and contribute to broader economic development.
It is also important to consider the administrative efficiency from the government’s perspective. The compliance and enforcement of GST involve significant resources. By raising the exemption limit, the government can streamline its focus on larger businesses, which contribute the bulk of GST revenues, thereby improving overall tax administration and collection efficiency. This could potentially result in higher compliance rates and reduced instances of tax evasion.
Critics might argue that increasing the exemption limit could lead to revenue losses for the government. It is important to understand that businesses not registered under GST are ineligible to claim input tax credits (ITC). This provision ensures that even if the threshold is increased, the government’s revenue from GST remains relatively unaffected. Here’s how this works:
Under the GST framework, registered businesses can claim input tax credits on the GST paid on their purchases. This means that the tax burden effectively cascades down to the end consumer, ensuring that the government collects GST at each stage of the value chain. However, businesses operating below the exemption threshold do not participate in this ITC mechanism. As a result, when these small, unregistered businesses purchase goods and services from GST-registered suppliers, they pay the GST but cannot claim it back. This tax collected at the supplier level remains with the government, thus maintaining the revenue stream.
Statistical analysis of GST collections reveals that a substantial portion of GST revenue is generated from larger businesses that contribute the majority of the tax base. According to data from the Central Board of Indirect Taxes and Customs (CBIC), small businesses, despite their large numbers, contribute a relatively smaller percentage to the overall GST revenue. By raising the exemption limit to ₹75 lakhs, the government would primarily impact a segment that already contributes minimally to the tax base while simultaneously fostering a more conducive environment for small businesses to grow.
Moreover, exempting a larger number of small businesses from GST registration could simplify the administrative workload for the government. Resources currently devoted to ensuring compliance among small businesses could be reallocated to enhancing compliance and enforcement among larger entities, which have a higher propensity for tax contribution and more complex tax arrangements. This reallocation could improve overall efficiency in tax administration, potentially increasing compliance rates and reducing the incidence of tax evasion among larger firms.
From an economic standpoint, businesses operating below the increased exemption limit would experience enhanced liquidity due to the absence of GST obligations. This increased liquidity can lead to higher investment in business operations, including expanding product lines, improving services, and hiring more employees. Such growth can generate higher direct and indirect tax revenues for the government in the form of increased income tax from businesses and individuals, as well as enhanced economic activity contributing to broader tax collections.
Furthermore, empirical evidence suggests that a thriving small business sector can have a multiplier effect on the economy. As these businesses grow and succeed, they create more jobs and increase the overall demand for goods and services. This demand can lead to higher sales volumes for GST-registered suppliers, who will continue to collect and remit GST to the government. In essence, the overall economic growth they stimulate can lead to increased tax revenues from other sources as well.
In light of the aforementioned benefits and considerations, it becomes evident that raising the GST exemption limit to ₹75 lakhs is not only a practical but also a necessary step for supporting the growth and sustainability of small businesses in India. This change would relieve a significant administrative burden, promote ease of doing business, and ensure that the government continues to benefit from GST revenue without compromising its fiscal interests.
However, meaningful policy changes require collective action and a unified voice. Therefore, we urge all small business owners, entrepreneurs, and concerned citizens to support this crucial initiative. By signing the petition on Change.org, you can contribute to a movement that aims to create a more equitable and thriving economic environment for small businesses across the country.
Sign the petition to raise the GST exemption limit to ₹75 lakhs and support the growth of small businesses in India. Your participation can make a significant difference in fostering an ecosystem where small enterprises can flourish without undue regulatory burdens. Let’s come together and advocate for a policy change that will benefit millions of entrepreneurs and contribute to the overall prosperity of our nation.
Petition will be submitted with your name to:
Shri Narendra Modi, Prime Minister of India
Smt. Nirmala Sitharaman, Finance Minister of India
Do share your comments on this post and join the discussion on how raising the GST exemption limit to ₹75 lakhs can benefit small businesses.
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