New GST Compliances for Sector Specific MSMEs in India

Micro, small and medium enterprises (MSMEs) in the online gaming and tobacco industry are facing new challenges related to Goods and Services Tax (GST) compliance. 

The said enterprises are grappling with massive tax demands from the government totaling over Rs 1.12 trillion across 71 cases for the period till October 2023. The matter is pending in the Supreme Court, but the GST Council plans to consider the impact of this tax demand on the industry's viability.

The main issue is the tax notices for the period before October 2023, when there was no specific GST rate for online companies, they used to pay 18% GST on platform fees/commissions (5-20% of deposits). However, from October 1, 2023, the GST Council imposed 28% tax on the full deposit value, leading to retrospective tax demands.

However, online gaming firms assert that they are just platforms with no "actionable claim" and have been paying due GST and the demands exceed their last five years' revenue, potentially forcing shutdowns. Experts suggest a win-win solution, as the tax demands are significantly higher than the companies' revenues for that period, although government revenue has increased after the October 2023 changes.

The GST authorities' stance that online gaming should attract 28% GST like betting was rejected by the Karnataka High Court last year, prompting the Centre to move the Supreme Court. Recovery can only happen after the apex court's decision.

On the contrary, to prevent tax evasion, the GST portal has mandated tobacco manufacturers to register their machines using Form GST SRM-I from May 15, 2024. Another form, GST SRM-II, which will soon be required for monthly reporting of inputs and outputs.

Failing to register machines within 30 days from May15’ 2024 and timely payment of installment can attract penalties of up to Rs 1 lakh. The regulations apply to makers of pan masala, unmanufactured tobacco, hookah tobacco, smoking mixtures, chewing tobacco, filter khaini, scented tobacco, snuff and gutkha.

This special procedure of track and trace has been recommended to curb illicit trade from a Group of Ministers who noted global tax evasion issues specifically in the tobacco industry. 

Henceforth, as the GST regime evolves, MSMEs in these sectors hope for resolutions that enable business viability without excessive tax burdens through transparent policymaking balancing revenue needs and enterprise sustainability.