Vol-13, Issue-2, 2026 ( July- Dec)
2026
Pages: 112-123
Open Access
DOI: https://doi.org/10.5281/zenodo.23101975
GST COMPLIANCE BURDEN AND WORKING CAPITAL STRESS IN INDIAN MSMES: A SECONDARY-DATA REVIEW OF EVIDENCE AND POLICY EVOLUTION, 2017–2025
Paresh Bora
India
Abstract
Purpose. This paper examines the compliance burden that the Goods and Services Tax (GST) places on India's micro, small and medium enterprises (MSMEs). Its particular focus is the working capital channel: input tax credit (ITC) that is delayed or lost.
Design/methodology/approach. The study is a descriptive analytical review based on secondary data covering 2017–18 to 2025–26. It draws on four sources:
• Official GST revenue and registration data.
• Ministry of MSME and Udyam statistics.
• GST Council recommendations, up to the 56th meeting of September 2025.
• Peer-reviewed estimates of compliance cost.
The analysis uses trend and compound growth analysis, structural ratio analysis, a chronological review of compliance rules, and a parameterised illustration of working capital cost.
Findings. Gross GST collections rose from ₹11.37 lakh crore in 2020–21 to ₹22.08 lakh crore in 2024–25, a compound annual growth rate of 18.0%. Active registrations crossed 1.51 crore. The compliance burden, however, is concentrated on the smallest taxpayers:
• Revenue concentration. Proprietorships and partnerships make up 90.62% of taxpayers but contribute only 20.61% of GST collections.
• Cost. Recent unit-level estimates put the compliance cost of unincorporated enterprises at 3.28%–13.90% of turnover.
• Working capital. The post-2022 rules that tie ITC to supplier reporting have turned the buyer's credit into a contingent receivable. A permanent loss of ITC costs an MSME far more than a delay in receiving it.
Practical implications. The study proposes a turnover-linked safe harbour for ITC lost through supplier default, and the extension of risk-based provisional refunds. It also proposes that banks use GST return data for cash-flow-based working capital lending to MSMEs.
Originality/value. The paper brings the 2025 reforms, the latest national cost estimates and a working capital lens together in a single framework for the MSME sector.
Keywords: Goods and Services Tax, MSMEs, compliance cost, input tax credit, working capital, tax administration, India
Design/methodology/approach. The study is a descriptive analytical review based on secondary data covering 2017–18 to 2025–26. It draws on four sources:
• Official GST revenue and registration data.
• Ministry of MSME and Udyam statistics.
• GST Council recommendations, up to the 56th meeting of September 2025.
• Peer-reviewed estimates of compliance cost.
The analysis uses trend and compound growth analysis, structural ratio analysis, a chronological review of compliance rules, and a parameterised illustration of working capital cost.
Findings. Gross GST collections rose from ₹11.37 lakh crore in 2020–21 to ₹22.08 lakh crore in 2024–25, a compound annual growth rate of 18.0%. Active registrations crossed 1.51 crore. The compliance burden, however, is concentrated on the smallest taxpayers:
• Revenue concentration. Proprietorships and partnerships make up 90.62% of taxpayers but contribute only 20.61% of GST collections.
• Cost. Recent unit-level estimates put the compliance cost of unincorporated enterprises at 3.28%–13.90% of turnover.
• Working capital. The post-2022 rules that tie ITC to supplier reporting have turned the buyer's credit into a contingent receivable. A permanent loss of ITC costs an MSME far more than a delay in receiving it.
Practical implications. The study proposes a turnover-linked safe harbour for ITC lost through supplier default, and the extension of risk-based provisional refunds. It also proposes that banks use GST return data for cash-flow-based working capital lending to MSMEs.
Originality/value. The paper brings the 2025 reforms, the latest national cost estimates and a working capital lens together in a single framework for the MSME sector.
Keywords: Goods and Services Tax, MSMEs, compliance cost, input tax credit, working capital, tax administration, India