Jharkhand: GST reforms transformative moment for MSMEs, say experts

Jamshedpur, Sep 29 (PTI) The recent GST reforms was not merely a structural change, but a strategic step to give impetus to economic activities of 6.4 crore Micro, Small and Medium enterprises (MSMEs) of the country, experts said.

Describing the reforms as the most significant tax reforms since the introduction of the Goods and Services Tax in 2017, professor of Finance at XLRI – School of Management, Prof Trilochan Tripathy, said the government streamlined the earlier four tax slabs into two broad categories.

For MSMEs, the reforms offers clear advantages as many inputs used by smaller manufacturers and service providers are now taxed at lower rates, Tripathy told PTI on Monday.

He said this reduction will help cut production costs and slightly improve margins in sectors that often operate with thin profit lines.

"The correction of inverted duty structures, where inputs were taxed higher than finished goods, will help exporters, especially in textiles and similar sectors, regain competitiveness," Tripathy said, adding that quicker refunds and smoother input tax credit claims will also offer much-needed liquidity.

"For many MSMEs, liquidity relief, even modest, can be the difference between stagnation and growth," he added.

Tripathy noted that the simplification of tax slabs also reduces confusion and the likelihood of classification disputes.

"Fewer slabs mean less confusion and a fairer playing field for smaller businesses," he explained.

Tripathy, however, said the reforms are not yet without challenges.

"Transition costs are immediate. Enterprises must update billing systems, reprice inventories, and train staff, which is especially difficult for micro firms. Compliance obligations have not disappeared either. Filing returns, keeping digital records, and facing audits remain demanding tasks," he added.

He said the bigger risk lies with state revenues as several states have warned of losses exceeding Rs 1 lakh-crore rupees annually.

"If these losses continue, governments may increase taxes, creating uncertainty for small businesses. The reforms promise will be judged not by tax cuts alone, but by how smoothly taxed at 18 per cent. Luxury and sin items continue to attract higher taxes, while some medicines, life insurance products, and educational supplies have been exempted," he said.

Appreciating GST 2.0 as a bold and welcome step, Tripathy said it reduces costs, simplifies the system, and signals a stronger policy focus on the small business sector.

Commenting on the reforms implemented on September 22, the newly elected president of Singhbhum Chamber of Commerce and Industry (SCCI) Manav Kedia said it was not merely a structural change, but a strategic step to give impetus to economic activities of 64 million MSMEs of the country.

"In all, 400 products were brought under 5 and 18 per cent slabs, which will directly benefit MSMEs manufacturing everyday essential commodities," Kedia, a tax consultant, said.

Branding MSMEs as backbone of domestic consumption, Kedia said the enterprises account for 35.4 per cent of manufacturing output and provide employment to over 12 crore people.

Attributing the contribution of MSMEs in sectors such as food processing, personal care products, textiles, chemical and household goods, the SCCI functionary said GST on products such as soap, toothpaste, shampoo have been reduced from 18 to 5 per cent.

"The reduction in GST not only provides relief to consumers, but also boosts demands," Kedia said, adding that 63 per cent consumers are concerned about prices of essential commodities while 44 per cent buy in bulk. "In such cases, GST rate cuts provide relief to them and leads to increase in demands for the sector", he added.

He said 60 per cent of new online sellers since 2021 are from Tier-2 and small cities and MSMEs are now generating over 50 per cent of their revenue from sales. PTI BS MNB