GST Implementation and its Impact on Small Business Tax Compliance Costs in India

Abstract

Goods and Services Tax (GST) was implemented in India on 1st July 2017. Implementation of GST was a major milestone in the journey of indirect tax system. Fram Pandit Deen Dayal Upadhyaya’s ‘Unified Tax System’ to ‘one nation, one tax,’ GST is seen as major development in the history of Indirect tax system. GST replaced multiple central and state taxes, simplifying the previously complex tax structure. By integrating various taxes into a single framework, GST aimed to streamline operations significantly. However, this reform has impacted small businesses cost of compliance. This research focuses on challenges that is faced by the small businesses in North India. Cost incurred on fees paid to the professionals, training of employees, accounting software, and administrative tasks. The study is based on primary data collected from five states Haryana, Delhi, Punjab, Uttarakhand, and Uttar Pradesh. The data was collected through structured questionnaires. Findings reveal that small businesses incur significant compliance costs under GST regime. Businesses in the manufacturing sector or with a greater number of operational years are having even higher costs. Findings highlight the administrative and financial challenges posed by GST compliance, emphasizing the need for policy measures such as simplified procedures for small businesses.