What has been the impact of GST on the Indian economy, and fintechs operating in the MSME lending space?
GST is the biggest tax reform in India on the concept of one tax instead of multiple taxes (taxes such as VAT, CST, Service Tax, CAD, SAD, Excise) at several stages, applied from July 2017 with an aim that it would offer a win-win situation for all.
The new system has just completed one year, hence it would be too early to analyse the impact of GST. However the short-term impact has varied from industry to industry. The first reaction was the difficulty in understanding the technology-driven processes and compliances as most professionals were quite confused about implementing and filing the returns. Gradually we have witnessed increased transparency in the taxation system and better tax collections by the government. While initially it created hassles for small manufacturers and traders, later they adopted the system very well. It has been a big positive for the Indian economy. As far as the fintech sector in MSME lending is concerned, it is a welcome move as fintech lenders like www.prestloans.com can verify the turnover of borrowers or applicants online and assess their credit worthiness. We consider registration of GST and return filing as sign of a good borrower.
What were the hits and misses of GST in the first year?
There has been a mixed impact of GST implementation.
Hits – (a) Plastics and steel majorly benefited and accepted GST easily, and increased their turnover and margins; (b) transparent and higher amounts of collection by government; (c) despite issues, it has been implemented and adopted.
Misses – (a) Realty and garments majorly impacted in terms of margin and turnover; (b) in many small segments the tax slab has increased; (c) small-scale manufacturers and traders have not preferred registration initially due to higher cost of compliances; (d) Government kept changing dates and formats for filing the returns.
How has GST helped you serve MSME customers?
GST has been a great help to us in servicing our MSME customers as this is an online transparent tool to get the data and analyse it. First of all we give higher weightage to GST registered borrowers vis-à-vis non-registered borrowers. Secondly, the GST returns filed by the client give us an idea about their turnover, and this makes it easy to take credit related decisions. Thirdly, a customer who is filing returns on time is considered a disciplined borrower. We have also seen that GST registered and paying customers are more confident and prudent in their dealings. For these reasons the entire process has become faster and more efficient, resulting in faster loan approvals and disbursement.
How do you expect the new tax system to benefit MSME borrowers?
We have already seen many positive steps being taken by the government on GST, like simplification of processes, reduction in rates etc. All this will help the MSME segment to grow faster. We expect that lenders (banks and NBFCs) shall be able to fetch GST data with prior consent of the loan applicants, and analyse it for faster processing and decision making. We also expect more and more small businesses and MSMEs to get registered for GST to take advantage of it. Prest Loans shall continue to provide support to all MSMEs and small businesses who adopt GST.