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GST: A nightmare for Indian Small Businesses

Government, GST, India, Tax / Business /

With the objective of revolutionizing the Indian taxation system GST (Goods & Service Tax) Law was passed in Lok Sabha on 29th March, 2017 and came into effect from 1st July, 2017. GST Law have replaced many indirect tax laws and under new GST regime, tax will be levied at every point of sale.

However, more than 86 percent or 395 million worked in unorganized sector (1) which were directly influenced by GST. Additionally, even the laws for GST are changing, creating lots of confusion among businesses, people and even to government. (2) In most places people were protesting against GST by closing shops and other business establishments. According to former Indian Finance Minister, P. Chidambaram, “Micro, Small and Medium Scale will suffer huge losses”. (3)

As problems arises for small unorganized traders because most of the transactions are made through cash (4) and they still can’t recover from the impact of last year’s demonetization. (5) (6) (7) GST have further added losses to their business. (8)

Even small shopkeepers and traders were struggling in creating different invoices for GST rates. GST have created burden among them since they have various items with different GST categories which were creating lots of confusions. (9) (10) At last, the procedure for filling GST returns were still in mist. (11) They have to take help from financial advisor or charter accountant which is non-economical.

GST incurs varieties of taxes which sometimes creates lots of confusion not only among customers but also to business owners. (12) Also, GST were still not implemented completely in every business around the country. The price of some products was changing according to the different locations. (10) In this situation, small business owners were charging prices of the products more than MRP, (13) while some were collecting GST fees more than as mentioned by government which creates lots of dissatisfaction among people. (14)

Some small traders or businesses were unable to afford the cost of accountants or financial advisors and computers etc. (15) Some of small business owners were illiterate and therefore unable to undergo business paperwork. (16) There was still not relief for small businesses with low annual turnover who have been exempted from GST (17) as they have no proof that they were been exempted from GST.

Responses from 255 managers from 133 micro (less than 25 lakhs turnover annually) and 92 small (25 lakhs to less than 2 crores turnover annually) organizations in Kolkata, West Bengal from 18th June to 11th Aug. 2017 were been collected to find out whether GST brought any financial confusion and burden in their business or not.












Table 1: Distribution of responses.

Diagram 1: Distribution of responses.

Study suggests that 191 (84.89 percent) out of 225 said that GST have brought lots of financial burden to their business. 119 (89.47 percent) respondents from micro organization have too unwelcomed GST. Only 21.74 percent from small organization have responded that GST may bring opportunities for their business. Some respondents were also afraid about for rapid changing in GST rates rapidly within short period of time by government, would hamper their existence business. Most respondents from micro organization still prefer cash as a medium of business transaction due to online frauds.

In this roller-coaster situation many traders were still buying unregistered products in cash without invoices and without paying any taxes. It seems in spite of government’s promotion for taking India towards cashless economy, common public still prefer cash transaction. (18)


  1. Datt, R. (Jan. 2008). Growth, Poverty, and Equity: Story of India’s Economic Development. Deep & Deep. p. 134. ISBN 978-81-8450-088-2. Retrieved 7th Nov. 2017.

  2. Kumar, A. (20th Sept. 2017). With Prices Rising Post-GST, Has the Government Taken the Public for a Ride?. The Wire. Retrieved from https://thewire.in/179281/gst-and-price-rise-public-taken-for-a-ride/ on 7th Nov. 2017.

  3. How Politicians, People Are Reacting to New Tax Regime. (8th Nov. 2017). The Quint. Retrieved from https://www.thequint.com/news/india/gst-day-1-reactions on 7th Nov. 2017.

  4. Jayaram, A. (04th Jan. 2014). For aam India, cash is still king. The Hindu Business Line. Retrieved from http://www.thehindubusinessline.com/money-and-banking/for-aam-india-cash-is-still-king/article5538950.ece on 7th Nov. 2017.

  5. Ashraf, A. (06th Dec. 2016). Interview: Demonetisation has hit 80% of small businesses, the sector is staring at apocalypse. Scroll.in. Retrieved from https://scroll.in/article/823231/interview-demonetisation-has-hit-80-of-small-businesses-the-sector-is-staring-at-apocalypse on 8th Nov. 2017.

  6. Aiyar, S.A. (20th Nov. 2016). Why small finance faces a big wipeout. The Times of India. Retrieved from https://blogs.timesofindia.indiatimes.com/Swaminomics/78367/ on 7th Nov. 2017.

  7. Sasi, A. & Iyer, V. (21st Nov. 2016). Demonetisation effect: Unbanked villages, small businesses badly hit as currency crisis continues. The Indian Express. Retrieved from http://indianexpress.com/article/business/economy/demonetisation-effect-unbanked-villages-small-businesses-badly-hit-as-currency-crisis-continues-4385176/ on 8th Nov. 2017.

  8. Desk, B.Q. (26th Sept. 2017). Small Businesses Worst Hit By GST, Demonetisation, Says Marico’s Mariwala. Bloomberg Quint. Retrieved from https://www.bloombergquint.com/business/2017/09/25/small-businesses-worst-hit-by-gst-demonetisation-says-marico-chairman on 8th Nov. 2017.

  9. Mehta, S. (05th Aug. 2017). GST stocktaking-IV: Small businesses are in a state of confusion; by resolving it India can improve its ease of business ranking; First Post. Retrieved from http://www.firstpost.com/business/gst-stocktaking-iv-small-businesses-are-in-a-state-of-confusion-by-resolving-it-india-can-improve-its-ease-of-business-ranking-3894083.html on 8th Nov. 2017.

  10. Rs.20 lakh registration exemption not for inter-state traders. (06th July 2017). The Economic Times. Retrieved from https://economictimes.indiatimes.com/news/economy/policy/gst-rs-20-lakh-registration-exemption-not-for-inter-state-traders/articleshow/59476364.cms on 8th Nov. 2017.

  11. Small stores struggle with tax rates. (02nd July 2017). Deccan Herald. Retrieved from https://m.dailyhunt.in/news/india/english/deccan+herald-epaper-deccan/small+stores+struggle+with+tax+rates-newsid-69724647 on 8th Nov. 2017.

  12. Confusion, uncertainties continue to cloud ‘one nation, one tax’. (26th July 2017). Financial Chronicle. Retrieved from https://m.dailyhunt.in/news/india/english/financial+chronicle-epaper-finance/confusion+uncertainties+continue+to+cloud+one+nation+one+tax-newsid-70835853 on 8th Nov. 2017.

  13. Dutta, P.K. (10th July 2017). GST pain: Retailers charge goods and services tax on MRP, complain consumers. India Today. Retrieved from http://indiatoday.intoday.in/story/gst-pain-retailers-charge-goods-and-services-tax-on-mrp-consumers/1/998334.html on 8th Nov. 2017.

  14. Handa, E. (21st Aug. 2017). Is your restaurant overcharging in the name of GST? 5 things to keep in mind while paying tax. India Today. Retrieved from http://indiatoday.intoday.in/story/gst-tax-restaurant-vat-alcohol-bill-cgst-sgst-eating-out/1/1030726.html on 7th Nov. 2017.

  15. Awasthi, R. (05th Oct. 2017). To Save ‘Make in India’, Fix GST for Small and Medium Businesses. The Wire. Retrieved from https://thewire.in/184096/make-in-india-gst-sme/ on 7th Nov. 2017.

  16. Little India struggles with tax revolution. (03rd July 2017). news.com.au. Retrieved from http://www.news.com.au/finance/economy/world-economy/little-india-struggles-with-tax-revolution/news-story/5dca5be3db33522d53c283ef70790c2a on 7th Nov. 2017.

  17. Mehra, P. (24th March 2017). How GST will affect small businesses. Money Life. Retrieved from http://www.moneylife.in/article/how-gst-will-affect-small-businesses/50063.html on 8th Nov. 2017.

  18. Nath, R. (31st July 2017). In Digital India, Common Man Still Prefers Cash Transactions. NDTV India. Retrieved from http://special.ndtv.com/cashless-bano-india-14/news-detail/in-digital-india-common-man-still-prefers-cash-transactions-1729614/7 on 7th Nov. 2017.

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