In the current scheme of things, the GST has caused a shortfall of working capital for SME clients, the Kerala Financial Corporation official said, explaining the circumstances under which the scheme is being launched.

“They are paying taxes on the realised profits and only after that can refunds be applied for. But as deadlines for GST returns get extended, they are made to wait longer for refunds,” the official said.

This has constricted the operating capital and has forced many to cut costs. As per the Act, refunds due for a financial year can be applied for only after the closure of the financial year on March 31.

Small and unorganised businesses in the traditional sectors such as textiles, leather and footwear are currently experiencing a supply disruption. Since they are labour-intensive, the situation is threatening the employment situation too.

One example is the footwear sector in North Kerala. For footwear with maximum retail price below ₹500, the rate at which GST is payable is 5 per cent. Most raw materials required for its manufacture attract GST at rates up to 18 per cent. This differential in rates has resulted in all the units in this sector having excess input credit.

While the smaller players have accumulated credit in the range of lakhs of rupees, bigger ones do it in crores in the five months that GST has been in operation.

This accumulated credit can only be funded with the working funds of the enterprise. Consequently regular operations are getting hit with each passing day.

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