India SME Forum on Thursday called for uniform GST enforcement and greater tax parity across India’s ecommerce ecosystem, warning that structural inconsistencies in indirect taxation were placing disproportionate pressure on micro, small and medium enterprises (MSMEs).
The industry body said a recent ruling by the West Bengal Appellate Authority for Advance Ruling (WBAAAR) had reinforced the need for competitive neutrality in digital commerce, where businesses performing similar operational functions should face similar tax treatment.
The comments come at a time when India’s MSMEs are grappling with slowing global demand, inflationary pressures, rising logistics costs and continuing supply chain disruptions, even as the government extends credit support measures to cushion smaller businesses.
GST Neutrality Central To MSME Concerns
India SME Forum said the broader issue for small online sellers was not enforcement against individual companies but the emergence of tax interpretations that could potentially create structural advantages for larger digital intermediaries.
According to the organisation, MSMEs remain among the most compliant participants within the digital commerce ecosystem despite facing significant operational and financial pressures.
The Forum said small businesses pay GST across multiple layers of their operations, including warehousing, logistics, packaging, payment gateway charges, advertising, returns management and platform commissions.
However, unlike large technology platforms or integrated logistics operators, smaller enterprises often lack access to complex tax structuring mechanisms, extensive legal teams or prolonged litigation capabilities.
“GST policy must uphold the principle of competitive neutrality, where no participant in the value chain derives an unfair advantage through interpretational arbitrage or regulatory asymmetry,” the Forum said in a statement.
It added that the WBAAAR ruling highlighted the principle that “substance must prevail over form”, meaning operationally similar logistics or courier activities should attract tax treatment aligned with their actual economic function rather than contractual classification alone.
Liquidity Stress Persists For MSMEs
The Forum also linked taxation challenges to broader liquidity pressures within the MSME sector, particularly amid existing macroeconomic uncertainty.
It said the government’s approval of the Emergency Credit Line Guarantee Scheme (ECLGS) 5.0 remained an important support measure for businesses affected by geopolitical tensions, weak global demand and higher operational costs.
Still, the organisation argued that credit support alone would not address deeper structural issues affecting smaller firms.
Among the major concerns highlighted were inverted duty structures, where MSMEs pay higher GST rates on inputs and services than on finished goods, leading to blocked input tax credits and working capital constraints.
The organisation said delayed GST refunds further worsened liquidity conditions for businesses operating on thin margins, especially exporters and smaller online sellers dependent on steady cash flows.
According to the Forum, any taxation structure that lowers indirect tax burdens for dominant digital intermediaries while ecosystem-related costs remain fully taxable for MSMEs raises concerns around market fairness.
The body said India’s digital commerce sector could achieve sustainable long-term growth only if compliance systems remained predictable, taxation neutral and market conditions equitable across businesses of different sizes.
Call For Uniform Interpretation Across States
India SME Forum also urged greater consistency in GST interpretation across states, arguing that fragmented enforcement practices increase uncertainty for companies operating across India’s digital marketplaces.
The organisation said broader review mechanisms by GST authorities may be necessary in cases involving classification disputes with wider market implications.
It also called for clearer interpretational guidance to ensure future compliance certainty across the ecosystem.
Among its recommendations were immediate clarification of GST provisions governing ecommerce logistics models, harmonised interpretation of tax rules across states and greater transparency in logistics-related taxation structures.
The Forum further sought expansion of refund eligibility under Section 54(3) to include input services and capital goods, along with fully automated and faster GST refund processing systems for MSMEs.
Additional recommendations included rationalisation of inverted duty structures and simplification of GST compliance requirements for businesses operating across multiple states and digital platforms.
President of India SME Forum said the next phase of MSME reforms should focus on ensuring fair competition and predictable taxation systems.
“MSMEs operate under rising logistics costs, platform dependency, return burdens and working capital constraints,” he said.
“Taxation frameworks must remain neutral, compliance should be predictable, and no structural interpretation should create unintended competitive advantages.”
He added that the sustainable growth of India’s digital economy would depend on “fairness, transparency and equal opportunity for enterprises of all sizes”.
India SME Forum said continued dialogue between industry, regulators, government authorities and digital platforms would be necessary to create a stronger and more competitive MSME ecosystem in India.
Source from: https://www.businessworld.in/article/india-sme-forum-flags-gst-imbalances-hurting-small-online-sellers-606940
