Impact of GST on Small and Medium Enterprises’ Financial Performance

NIKITHA M P; AKSHAY P S

doi:10.36948/ijfmr.2026.v08i04.83715

Impact of GST on Small and Medium Enterprises’ Financial Performance

Author(s)	Ms. NIKITHA M P, Mr. AKSHAY P S
Country	India
Abstract	The introduction of the Goods and Services Tax (GST) on July 1, 2017,brought about a major change to India's indirect taxation system by replacing multiple state and central taxes with a single, unified tax structure. This reform was introduced to simplify the tax system, improve transparency, and promote economic growth. Small and Medium Enterprises (SMEs), which play a vital role in India's economy by contributing to employment, industrial production, and GDP, have been significantly affected by this change. While GST has created opportunities such as easier interstate trade, a transparent tax system, and the availability of input tax credit, it has also increased compliance requirements and operational challenges, particularly for smaller businesses. This study aims to examine the impact of GST on the financial performance of SMEs by focusing on factors such as profitability, revenue growth, operating costs, cash flow, working capital, and tax compliance. The research is based on secondary data collected from government reports, RBI publications, Ministry of MSME reports, GST Council publications, and previous research studies. A descriptive research approach has been used to understand both the positive and negative effects of GST on SMEs. The findings suggest that although many SMEs faced initial difficulties due to digital filing requirements, increased compliance costs, and delays in claiming input tax credits, they gradually adapted to the new system. Over time, GST has contributed to better financial transparency, improved business efficiency, and greater integration into the formal economy. The study concludes that, despite the short-term challenges, GST has had a generally positive impact on the financial performance of SMEs. It also recommends simplifying GST compliance procedures, improving awareness among business owners, and ensuring quicker refund processing to help SMEs achieve sustainable growth.
Keywords	Goods and Services Tax (GST), Small and Medium Enterprises (SMEs), Financial Performance, Tax Compliance, Working Capital, Profitability, Input Tax Credit (ITC), Business Growth, India.
Field	Business Administration
Published In	Volume 8, Issue 4, July-August 2026
Published On	2026-07-21
DOI	https://doi.org/10.36948/ijfmr.2026.v08i04.83715

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Impact of GST on Small and Medium Enterprises’ Financial Performance

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