It’s visible that government trying to establish a friendly business environment and theoretically it all looks very good and smooth from outside, but in practical terms this article explains how the GST made things simpler then earlier taxation system, but the age old terms locks the working capital which at one point encouraging entrepreneurs to stop scaling, the small details shows the in-depth knowledge of the author.
Ease of doing business
Let’s see about the ease of doing business especially in the case of MSME what we are looking out from the government side in a consulting industry. This varies from Industry to Industry.
In Consulting Industry however one may have an MSME certification and they service their clients. Companies who avail their service are suppose to pay their service in 45 days, but they never get payments from their clients in 45 days, MSME get their payments from their clients by 90 days, This we cannot pass the bug with their clients as their clients get their payments beyond 90 days of time.
Meanwhile a MSME consulting company would have raised 3 invoices for which they are suppose to pay GST. In an instance if a Company raises invoice of 1 Cr by 1st of the Month, they are suppose to pay 18% GST which is 18Lac by 20th of the Month. In three months he would have rendered the service to a client where he would not have received a single rupee payment, he would have rendered the service to his client and his out standing from his client would be 3 Cr and to top it he would have paid 54 Lac GST by this time.
In this case there would be an easy solution where he would be less taxed is whenever the client releases the payment he deducts the TDS and pays the MSME, When he releases the payment why would not they look at deducting the GST and pay the government directly, so that he would have additional 50 Lacs+ as CAPEX. When an MSME gets the payment and government will get their GST not much before his services getting realised to money.
Releasing of lesser TDS on time: These MSME’s never get their lesser TDS certificates on time. With my little experience 3 to 5% TDS is ideal for the industry to be deducted they get a deducted a 10% TDS and by the time they get their lesser TDS certificate, MSME’s more money is getting deducted and remitted to his TAN, this MSME has to wait for an year to file their returns and from there they take an year to get their refunds. For example if a MSME is deducted a 1 Cr for the year (Apr’19 to Mar’20) he files the returns by Aug’20 and the MSME gets the refund in Sep’21. Where their refund would have been around 70Lacs. In this his capital gets arrested for 18 to 28 Months. This has to be eased with the periodical refund which can ease their business.
This industry operates at a less than 10% of Net profit, If an MSME does a 12 Cr business over the year the net profit would be around 1.2 Cr, in that his entire profits would have been locked with TDS and more investment would have gone in paying the TDS.
This MSME can never look at scaling, as the entire capital would be in the form of outstanding, TDS, GST. These companies either they soak without growth as they would have no money to improve their capital. Only 5% companies move up and see a growth and 10 to 15% prefer to stay in a same level and 80% of the companies try to grow and they die.
Availability of liquidity through banking systems, Most of them never get this availability of this through any banks. When the banks are approached for loans or over draft facility, they never get this facility after filing a 3 positive balance sheets too, They are asked for collateral, when they can give a collateral they could have raised the capital themselves never would have depended on their banks.
GOI should really think of easing this three points. GST, Excess TDS collected paid back periodically and ease of loans.
Aravind Balakrishnan is very humorous and has a vast exprience in Human Resources domani works with IT Consulting / staffing & Telecom industry. He is interested in Politics, Geo-Politics, Finance and Human Resource.