Policy Next MSME Summit: B2C MSMEs have no incentive to be GST compliant: Resurgent India MD

MSMEs are catering to the business-to-consumer segment with no GST refund.

Micro, small and medium enterprises (MSMEs) which cater to retail consumers have little incentive to come under the ambit of the goods and services tax regime, despite the policy push for formalisation, according to Jyoti Prakash Gadia, Managing Director of Resurgent India.

“MSMEs are catering to the business-to-consumer segment with no GST refund. They have no incentive to get regulated or join the GST mechanism,” Gadia said at Moneycontrol Policy Next MSME Summit in Delhi on June 28.

“Thus MSMEs have no incentive to get into GST compliance. Only one crore MSMEs of a total of six crore are registered,” he added.

“Unlike large organisations, MSMEs do not have compliance teams. They do not have funds for it. A direct compliance cost and opportunity cost is a double whammy for them,” Pushan Sharma, Director, CRISIL added to this.

If India has to capitalise on this demographic dividend, we need to reduce the compliance burden, Sharma said.

Speaking on the cost of compliance, he said that it remains very high in India and that much more needs to be done to increase the ease of doing business in the country.

The cost of compliance has come down in certain sectors such as income tax but has increased in GST, Anil Bhardwaj, Secretary General of FISME noted.

The MSME sector contributes 45 percent of the total Industrial employment, 50 percent of the total exports and 95 percent of the industrial units in India.

The high compliance burden on Indian businesses is well known and goes beyond tax compliances. The fact that micro and small businesses suffer disproportionately has also been well documented. According to a Mahratta Chamber of Commerce, Industries and Agriculture-Avantis Regtech report of 2021, a typical MSME in Maharashtra with one office and a factory, around 100-150 employees and a turnover of around Rs 10 to 20 crore, has to obtain 27 different types of registrations in order to start operations — of these, 15 are from the Centre and 12 from the state government.