Effect of GST on Small and Medium Enterprises (SMEs) in India

Abstract

The implementation of the Goods and Services Tax (GST) in India marked a significant reform in the indirect taxation system, aiming to unify multiple taxes into a single, transparent framework. This study examines the impact of GST on Small and Medium Enterprises (SMEs), which constitute a vital segment of the Indian economy in terms of employment generation and contribution to GDP. The research highlights both the positive and negative effects of GST on SMEs. On the positive side, GST has simplified the tax structure, improved compliance through digitalization, and facilitated easier interstate trade by eliminating cascading taxes. However, SMEs have also faced challenges such as increased compliance costs, complex return filing procedures, and the need for technological adaptation. The study further explores how GST has influenced business operations, working capital management, and competitiveness among SMEs. Overall, while GST has enhanced transparency and long-term efficiency, its initial implementation posed significant transitional difficulties for small businesses. The paper concludes that continuous policy support and simplification measures are essential to ensure sustainable growth of SMEs under the GST regime.