GST Advisory

Why are Small Businesses failing to keep up with GST Compliance?

The GST council established rules on how to keep records, send invoices, report purchases and sales, pay taxes, and file returns by GST registered businesses. This is part of the GST compliance where conforming to mandatory GST laws is necessary. Non-Compliance with GST can invite heavy fines and penalties. However, due to less resources, businesses, especially small businesses, find it challenging to stay GST compliant. This article analyses the main reason behind the same.

What is GST Compliance Rating?

It is a score given to business by the government which captures compliance consistency of a company. This rating is assigned to every taxable entity under GST, regardless of its nature, size or turnover.

As per law, if buyers wish to claim input credit for products, then they are required to show all transactions in which they have paid GST to their suppliers. The higher the compliance score, the greater the chances of buyer of reclaiming the input tax credit^[1].

Why are small businesses unable to keep up with GST compliance?

Small businesses find it difficult to stay GST compliant due to these fundamental reasons:

• Financial constraints

Small businesses experience financial constraints, and due to this constraint, businesses make the mistake of skimping on accounting resources. As per a research conducted, more than half of the small businesses don’t use the services of a bookkeeper or an accountant. This is why most businesses struggle to keep up with the GST compliance. Therefore if you are running a small business, then you are advised to keep a well trained bookkeeper. If your budget doesn’t allow for one, then consider outsourcing the work to an accounting service provider.

• No professional expertise

This is another significant reason why small businesses fail to comply with GST requirements as they lack professional expertise in matter relating to taxation. Small businesses find it difficult to find one as they can’t afford to hire in-house personnel to meet such skill requirement. Further small businesses also cannot afford to focus on any other task as they are committed to focus on activities that can scale up their business growth. Compliance is necessary, but it cannot be executed at the cost of real business growth.

• Lacking right tools

All taxpayers in India must comply with the GST compliance standard as mandated by Indian government. Having the right tool to generate, maintain and record invoices can help them meet this need. However, it is difficult for small businesses to afford the set of right tools for this purpose as compliance with GST requires accurate and systematic recording of transactions and strict adherence is required with the deadline prescribed by the authority. Additionally, GST return filing due dates and GST compliance calendar should be followed without fail.

• No assistance from GST advisory

Using the services of a GST consultant can allow you not to miss deadlines and help you to stay compliant with GST regulations. As a small business owner, one may not have the finances or the requirement to employ a full time GST compliance officer. Therefore in such cases, services of external GST compliance providers can take care of such activities on your behalf. Further, such external service providers are well trained in industry specific GST norms and regulations. Additionally, they possess necessary tools to ensure 100% compliance.

These were some of the fundamental challenges, but there are various other reasons that trouble small businesses, such as infrastructure bottlenecks, lack of formalization, poor technology adoption and the perennial issue of delayed payments.

Way forward

The government authorities should significantly reduce the GST compliance burden upon small businesses. Further businesses should work on enhancing their technical ability. The growth and development of small businesses is critical to the Indian economy therefore, there should be further relaxations in compliance burdens to stimulate the businesses of those that are short on finances.

Read our article:Understanding the term GST Compliance Rating