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GST on supplies even if payment is not received, irks MSMEs
July, 06th 2020

MSMEs say this a major strain on cash flows, as the COVID-19 pandemic has further delayed payments from big corporates as well as public sector units

Micro, small and medium enterprises (MSMEs) are irked by the norm that they have to pay Goods and Services Tax (GST) on supplies, even if the payment is not received for them. A section of MSMEs say that the COVID-19 pandemic has further delayed payments from big corporates as well as governments and public sector units.

“The major strain on cash flows for MSMEs comes from GST payments, as we are forced to pay for our supplies irrespective of our overdue payment dues,” S. Vasudevan, joint secretary, Tamil Nadu Small and Tiny Industries’ Association said.

He pointed out that the average payment cycle from governments and public sector units vary from 45 days to 120 days and in case of few departments, it even exceeds 180 days.

Mr. Vasudevan pointed out even in case of big corporates there is a delay, while there is no provision to address the delayed payments of MSME since the threshold for approaching National Company Law Tribunal has been raised to Rs. 1 crore from Rs. 1 lakh earlier. He said to ease the cash flow situation, the government should make monthly filing and quarterly payment of GST.

There should also be a provision that the buyer should not take any input credit if the payments are not made for the supplies, Mr. Vasudevan said.

A.N. Sujeesh, president, Ambattur Industrial Estate Manufacturers’ Association pointed out that the delayed payments issue from buyers has got aggravated due to the COVID-19 pandemic. “The GST has to be paid as soon as the invoice is raised. While we are struggling with delayed payments, the buyers are availing input credits,” he said.

“With most businesses having apprehensions on recoverability or anticipations of delayed collections, the government could consider relief at least for MSMEs on GST being payable on receipt basis vis-a-vis milestones billing prescribed currently. This would provide substantial fiscal relief (especially from a working capital perspective) for MSMEs,” said Abhishek Jain, tax partner at EY, an auditing firm.

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