Impact of Goods and Services Tax (GST) on the Financial Performance and Compliance Behavior of Micro, Small and Medium Enterprises (MSMEs) in India

Abstract

The implementation of the Goods and Services Tax (GST) in India marked a significant reform in the indirect taxation system. Designed to unify multiple taxes and streamline tax administration, GST has had varied implications across sectors—particularly on Micro, Small and Medium Enterprises (MSMEs), which form the backbone of the Indian economy. This study evaluates the impact of GST on the financial performance and compliance behavior of MSMEs in India using secondary data from government reports, industry surveys, and published research. The findings reveal that while GST has simplified taxation in theory, many MSMEs face challenges related to compliance costs, digital literacy, and working capital disruptions. However, the regime has also fostered greater formalization and transparency in business operations. This paper suggests policy-level improvements to reduce compliance burdens and enhance MSME adaptability to the GST framework.