Impact of GST on Small and Medium Enterprises in India: A Critical Empirical Analysis

Abstract

The implementation of the Goods and Services Tax (GST) in India on 1 July 2017 marked a transformative shift in the country’s indirect taxation framework. By subsuming multiple indirect taxes into a unified structure, GST aimed to enhance transparency, reduce cascading effects, and create a common national market. Small and Medium Enterprises (SMEs), constituting the backbone of the Indian economy, have been significantly influenced by this reform. SMEs contribute nearly 30% to India’s GDP and employ over 110 million people, making them a critical component of economic growth and employment generation. This paper provides a comprehensive analysis of the impact of GST on SMEs using secondary data from government reports, academic studies, and policy documents. The study evaluates the impact across multiple dimensions, including compliance burden, cost structure, working capital management, digital transformation, formalization, and competitiveness. The findings reveal that while GST has generated long-term structural benefits such as improved tax transparency, supply chain efficiency, and market integration, it has also imposed significant short-term challenges, particularly in terms of compliance complexity and liquidity constraints. The study concludes with policy recommendations to enhance the effectiveness of GST for SMEs.