MSMEs seek GST automation, concessional input rates

The Federation of Indian Micro and Small & Medium Enterprises (FISME) has asked the government to establish an automatic refund mechanism for input tax credit (ITC) under goods and services tax (GST) and tax feedstock at a reduced rate if the present classification levies a lower tax rate on the final product made using it. It has suggested a concessional rate of 8% for input material, which would be taxed at 18% otherwise, used to make finished goods taxed at 5%.

In a letter to the finance ministry, FISME pointed out, "GST reforms have also created new challenges for MSMEs, chiefly related to the inverted tax structure. A large number of products manufactured by MSMEs are taxed at 5%, while their inputs continue to attract 18% GST". FISME is suggesting a concessional rate, which will apply to business-to-business (B2B) transactions without making any difference to end consumers and, at the same time, even out the problem of the inverted duty structure. "The concessional rate won't make the GST rate complex for customers, as it will apply only for B2B transactions where there is tariff escalation," said Anil Bhardwaj, secretary general, FISME.

The MSME body said under the new GST structure, small enterprises are likely to have an additional 10-12% funds blocked through accumulated input credit for two-three months or the duration of the refund cycle.