One Year of GST Impact on Unorganised Sector

The unorganised sector, as the name says, represents those businesses that are unincorporated (not governed by any official entity). These include private enterprises that are run by individuals or small families and involve the production and selling of certain goods and/or services. These businesses are usually run on a partnership or proprietary basis and have ten or fewer workers in total. So, how has GST impacted the unorganised business sector of India during the course of last one year?

Let’s find out.

There is a reason why not much data or details are available regarding the impact of the GST regime on the unorganised sector. The sales records of this industry are impossible to know because there are no records. These businesses operate without any bills or official records. That is why it has been infeasible to conduct any research or get data on the significance of this sector in an after-GST India. “There are anecdotal stories that we get to hear, but they are not borne out of any research data,” says revenue secretary Hasmukh Adhia.

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As the former Indian chief statistician and economist Pronab Sen explains, the damage to the unorganised sector due to GST is not easy to figure out. As of now, there is no way to measure how much transactions take place between the unorganised sector and the organised sector of the country.

He agrees that GST, much like all other business sectors, has had a significant impact on the unorganised sector, even the government cannot deny that. The question, however, is how bad this impact is and when and how will this sector overcome it.

Sen points out that one and probably the only way for the unorganised sector to survive in the post-GST economy is to provide the goods/services at a lower price than the tax deducted price offered before GST. “Today for instance the organised sector is paying 15 per cent tax, then the unorganised sector that doesn’t pay tax, automatically gets 15 per cent price advantage. Now, if they register for GST, that advantage goes off. Even if they get input tax credit, the compliance cost would go up,” he says.

FISME (Federation of Indian Micro and Small & Medium Enterprises)’s secretary-general Anil Bharadwaj further explains the issue. According to him, the transition from the VAT to GST was easier for MSMEs, however, not so much for the small companies and micro enterprises which were not formally recognised before.

One positive impact of GST on the organised sector has been in the form of partial formalisation of the MSME companies. “Now, that they are in the GST net, they can prove that they have basic minimum revenue, which has improved their chances of getting credit from banks. The credit offtake of MSMEs have gone up,” says revenue secretary Hasmukh Adhia.

The increase in the number of registered taxpayers in the post-GST era is also an indication of a more formalised economy.