2.75 lakh enterprises went out of business Since implementation of GST

2.75 lakh enterprises in Gujarat have closed their doors and given up their Goods and Services Tax (GST) registrations, despite the fact that the new tax system was designed to make doing business easier and include more taxpayers, according to the state’s commercial tax department. The amount represents almost one-fourth of Gujarat’s current 11.1 lakh taxpayers.

However, leading sources within the state department of commercial taxes present a different image. “Many people voluntarily register for GST in preparation of doing business. Sometimes things don’t work out,” the source stated. One of the causes of the reduction is that when people begin receiving penalty warnings for not filing returns, they frequently give up their registrations. The amalgamation of small and medium-sized enterprises to lessen the burden of compliance, according to industry insiders, has also contributed to the downward trend in numbers.

It’s interesting to note that the sharp increase in business closures peaked in 2017–18, the financial year that witnessed both the passing of the GST bill and the year that immediately followed the liquidity crisis brought on by Prime Minister Narendra Modi’s abrupt demonetisation move.

After that, pandemic hit the country very hard, which stops the trades and commercial activities worldwide. Most of the employees lost their Job, as the businesses was not able to bear the aggregate cost to run the company and they started firing the empolyees in terms of cost cutting.

In the two years since the pandemic began, roughly 1.24 lakh of these enterprises had closed. Industry participants blame the closures on a general economic slowdown, increased compliance costs, and interruptions brought on by the pandemic.

According to Pathik Patwari, senior vice-president of the Gujarat Chamber of Commerce & Industry (GCCI), “The new tax regime brought with a lot of compliance responsibilities with monthly return filing and tax payments.” this is how the economy has affected businesses during the previous five years.

“As a result, many small firms who don’t have a sizable corpus or run on longer payment cycles encountered operational restrictions,” he continued.

He added, “As a result, many chose to close their doors or merge with larger businesses, even parent corporations or sister concerns. Many businesses were unable to afford the enormous compliance costs associated with each return filing.”

According to Patwari, a number of firms have been disrupted by inflation, a downturn connected to geopolitical tensions, COVID-19, and a trend of sluggish demand over the previous three to four years. Many small shops, eateries, and other enterprises in the textile, retail, travel, and hospitality industries have shut down, he claimed, particularly since the pandemic broke out. This might potentially have a significant role in the drop in registrations.

Over the past three years, the number of business closures has climbed while the number of new businesses registered has steadily decreased.

The large job losses experienced in recent past months must be viewed in conjunction with the swift business closures.

Urban unemployment was estimated to be between 15 and 20 percent, which is four percentage points higher than the unemployment rate in rural areas. Metropolitan residents rely heavily on the jobs offered by private businesses of various sizes because urban regions lack the safety net of rural employment.

The number of new registrations decreased from 1.6 lakh in 2018-19 to 1.39 lakh, while the number of reported firm closures increased from 30,732 in 2018-19 to 63,213 in 2020-21.