The Impact Of Goods And Services Tax To Small Businesses

The Impact Of Goods And Services Tax To Small Businesses

No business owner fancies the idea of taxes. Since most companies utilize capitalism, they would rather minimize costs to maximize profits. This situation is not different from goods and services tax (GST).

While it's yet to be agreed on whether the effects of GST on small businesses are either positive or negative, the concept impacts businesses regardless. Some tax systems reduce small business expenses from one angle but impose more on another. So the surest way of knowing how the system fares are to see its impacts from all ends.

Thus, this post covers the positive and negative impacts GST has on small businesses. Of course, these impacts are comparable to let you know how positive GST is on small businesses. But most small businesses are yet to align and flow with the system entirely, so a verdict cannot be given now.

What Is Goods And Service Tax (GST)? 

GST is an indirect tax imposed on goods and services meant for domestic use. Depending on the percentage the government charges, the business adds it to the price of its products or services. When a consumer purchases that product or service, he indirectly pays the GST.

How To Calculate Your GST

There are mainly three ways to calculate your GST: adding, subtracting, and multiplying. Aside from those, you can perform your GST calculations via free online GST calculators. Alternatively, you can download apps online that offer free tools and resources for the calculation.

Calculating GST by multiplying is not tricky to do. For instance, assuming GST is 10% of a product's sales price and a product's price is USD $15000, you only have to multiply USD $15000 by 10% of 100, which is 01. Doing so gives you a result of USD $1500 as your GST.

Taxes for small businesses

Positive Impacts Of GST on Small Businesses 

Without GST, an American business, for example, that charges USD $65,000 for its product + a 10% service tax would be paying USD $6500 for service tax. But that won't be all. If USD $25000 is spent on office expenses and the VAT is 10%, the business owner would indirectly pay another USD $2500 for Value Added Tax (VAT). In summary, this business would be spending USD $9000 on taxation.

But with GST, the owner's tax rate would be lower because the VAT it pays for office expenses would be considered. With small business development in mind, GST offers tax reductions for businesses earning below a particular range depending on the state in question. It helps small businesses to thrive as they reinvest funds in the industry to enable it to scale.

Also, because GST provides lesser tax, the price of final products will be lesser. The effect is that products will be more affordable, resulting in more sales and profit for businesses. In short, the lower the taxes, the lower the cost spent in producing goods, and so the lower the price of goods.

Furthermore, several seized goods and delays at custom checkpoints have been recorded. It is not usually because businesses don't want to show documents but because there are a lot of goods and services copies to be provided, and it's easy to forget one. But GST covers all required documents, thereby making distribution and logistics operations much easier and faster.

Negative Impacts Of GST On Businesses 

Though mentioned earlier that GST reduces the price of commodities, that reduction doesn't affect all sectors. Small businesses in the real-estate, textile, media, and health sectors are the opposite.

Because GST software is somewhat expensive and needs to be regularly paid, it's an added cost for small businesses in those mentioned industries. Even if a small business gets one, it'd require an expert to operate it efficiently, and this expert must be paid. So, GST is somewhat a burden for companies that can't afford it.

Worse is that businesses that don't align with GST regulations may be penalized. This fine often puts much pressure on budding companies, altering their operational costs, and disincentivizing their mission. Besides, most businesses have yet to know about GST is its double taxation. The federal and state government each has their levy. Again, this adds to the expenses of small business owners.


Goods and services tax (GST) is a new system of taxation considered positive generally. However, when narrowed down to small businesses alone, it cannot be said directly that the system favors them. To an extent, it impacts SMEs positively. But from another perspective, the effects are adverse.

Blog Categories


Recent Posts

Search Site
© 2012-2023 Mike Gingerich Global, LLC    Contact   -   Privacy
magnifier linkedin facebook pinterest youtube rss twitter instagram facebook-blank rss-blank linkedin-blank pinterest youtube twitter instagram