IMPACT OF GST IMPLEMENTATION ON MSMES IN AHMEDABAD AND GANDHINAGAR: CHALLENGES, COMPLIANCE, AND GROWTH OPPORTUNITIES

Abstract

The Constitution of India allows States to administer their own Sales tax regime. Each State/UT, till 2005, levied varied sales tax, had different taxable bases and list of exemptions etc., under each state’s sales tax laws. This had no uniformity in rates of taxation on the sale of goods. This, in effect, led to various trade distortions due to a “tax war” among States, where each state to attract the transaction and trade would lower the tax rate. Later, in the first decade of this century, states decided to opt for a more efficient VAT taxation regime. The states agreed to adopt VAT in 2005[i]. The successful switch-over to State Value Added Tax system in place of the erstwhile Sales Tax system has established that the value addition-based taxation principle, resulting from providing credit for taxes paid on inputs at each point of transaction of goods and /or supply of services, is the most transparent and efficient indirect tax system. However, VAT was specific to each state, and there would be no crossover of input tax credit across states or between centres and States. There was a need to achieve pan India unification of indirect taxes. This formed the basis for a much broader indirect tax reform attempt to design a comprehensive national-level VAT, also called Goods and Services Tax, covering the entire production-distribution chain, including goods and services, and integrating multiple indirect levies Central and State Governments[ii]. Goods and Services Tax introduced in India from July 2017 and is talked about as the mother of all indirect tax reforms. People cutting across all sections expect this reform as a panacea to all the taxation inefficiencies