Thriving amidst difficult environments has never been easy for SMEs in India, but they continue to stand tall. Despite numerous challenges in the form of infrastructural constraints and lack of access to formal credit, they contribute to 8% of the GDP. Rightly called ‘the engine of growth’ for India, SMEs have scaled manufacturing capabilities, reduced regional disparities and balanced the distribution of wealth.
Small businesses are now being increasingly associated with innovation and employment, and the figures state likewise. The micro, small and medium enterprise(MSME) sector contributes to 69% of employment in India. With the growing penetration of technology into mainstream ecosystem, these industries are at the forefront of bringing the convenience of digitalization to the masses.
The Indian economy is expected to be a $5 trillion economy by 2025, and SMEs are cutting roads towards this goal. As we enter the first financial year post implementation of GST, some interesting small business trends are touted to play an important role for a smoother growth journey to global standards.
Here are the latest business trends that you can keep in mind while setting your objectives for FY 2018-19.
Business Trend 1: Rise of Online B2B Marketplaces
E-commerce marketplaces are gradually gaining momentum worldwide, and has branched out to B2B trading platforms. While this is still at an embryonic stage in India, there is no doubt that the potential it holds is huge. According to experts, the scope of the ecommerce B2B industry is six times bigger than the B2C industry, and is estimated to be worth $620 billion industry by 2020.
Companies such as Amazon Business, Alibaba, IndiaMart, Power2SME, etc. are popular online platforms that connect B2B buyers and suppliers to fulfill their business requirements. These digital platforms have helped small businesses surpass technical and geographical limitations to procure raw materials in bulk at reduced prices and also become official supply partners to large corporations. This is one of the hottest small business trends of 2018 that will present aspiring as well as budding entrepreneurs a level playing field with industry leaders.
Business Trend 2: Personalized Customer Outreach via Automated Tech
With the oldest of the millennials attaining 35 years of age this year, the target audience has shifted by a generation. For an age bracket that has been wrought in technology, this band of consumers need more than online communication. They seek a personalized line of contact when availing services from small businesses, with 60% of them choosing emails as a preferred way to establish this connect.
Since the millennial generation has the highest buying power in the market valued at $44 billion globally, this is one audience you don’t want to miss out on. You can target them by leveraging interactive videos, engaging images, and emails customized with these elements for varying demographics. The use of intelligent virtual communication applications will help you implement this in an efficient and cost-effective manner.
Business Trend 3: Easy Access to Business Credit with FinTech Lenders
The biggest hurdle for small business owners has always been financing. For a country with 50 million SMEs, there is an unmet credit deficit of a staggering $350 billion. Traditional lending institutions are limited by conventional underwriting that caters only to a certain strata of businesses. Lack of collateral, documentation and operational history have been crippling factors that prevented SMEs from qualifying for formal finance. This, in turn, pushed SMEs to the informal sector where the high interest rates charged by moneylenders fettered borrowers to a chronic cycle of debt.
But, FinTech lenders are shifting the narrative by leveraging technology and unconventional data points to provide affordable loans to small businesses as well as consumers. With customized credit products and zero collateral requirement, these digital financiers bridge the gap that had long existed in the market.
Business Trend 4: Big Data to Drive Operations and Decisions
‘Is Big Data too big for SMEs?’- is a question that requires intensive analysis, depending on the goals that define the small business and its operations. Many SMEs see big data projects as unapproachable and sophisticated, owing to the difficulties inherent in understanding huge datasets. However, studies reveal that a calculated use of big data has a colossal impact on the growth of small businesses and has been the chassis for many popular business models.
This business trend is expected to revolutionize the SME sector by speeding its pace of development. New-age digital lenders do finance technological incorporations if it shows a direct correlation to business growth, so you needn’t worry about the funds for investing in Big Data. Check out Unsecured Business Loans for more details.
Business Trend 5: Shifted Focus on IT Security
2017 saw one of the largest cyberattack worldwide, the WannaCry ransomware attack, that caused the encryption of data on computers running the Microsoft Windows operating system and risked the exposure of sensitive data of companies in over 150 countries. Though the attack was stopped within a few days of discovery, the total damages were estimated to be in billions of dollars.
The IT industry in India contributes to a key part of the country’s economy, a significant number of enterprises will begin to invest in dedicated security systems that focus on detection and response, a shift away from conventional systems that were based on prevention. Security enhancements offered by SaaS/Cloud based platforms have become more affordable for small businesses to establish a dominant architecture for data integrity management.
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To provide quality education, private schools in India must have cutting-edge infrastructure and well-planned facilities. This is even more important now because the generation currently in schools is growing in an environment of mobile computing devices and e-commerce. Since private institutions are entirely dependent on their own earnings to improve their campus, they may need school loans to finance such expenses.
Let us look at the top reasons that drive schools towards taking loans from banks and NBFCs:
1. To construct a new school building
Loan for construction of school building is commonly sought by institutions that are successfully providing education services but need more classrooms to accommodate the increasing number of students. Adding more sections for each grade is also a good idea when schools are focused on keeping a low student:teacher ratio.
2. To build a playground/sports court
School loans may also be required to add a playground, basketball courts, tennis courts or rooms for indoor sports. Games are an essential part of school education, and if a small unsecured loan from an institutional lender can help to build a beautiful playing field, the investment is worthwhile.
3. To develop a laboratory
Schools need to have well-equipped labs for practical experiments concerning physics, chemistry, biology and to give students hands-on experience with computer studies. Some private schools are also required to have Home Science labs as per the curriculum for their students. A quick loan for school laboratory can be procured at easy terms from a FinTech lending company. Such lenders usually provide up to Rs 50 lakhs on loan for building school laboratory.
4. To buy furniture for classrooms, staffroom
A simple reason to apply for a loan could be the purchase of new or additional furniture for students and staff. The cost of ergonomic desks and chairs may not be within the budget of the school, and financial support from a FinTech company can come in handy.
5. To purchase commercial vehicles
Schools that provide transportation services to their students and staff may need to buy new buses or vans. If adequate finance is not available for such purchases, FinTech lenders can offer simple digital modes to provide unsecured loans with flexible repayment options.
6. To build or improve a library
Well-stocked libraries are essential components of any school’s infrastructure. A school that has been running successfully for some time, but does not have a library, can borrow funds from school loan companies to build a quality library on its campus. Unsecured school loans can also be taken to buy stocks of new books that are too expensive to purchase in the available library budget.
7. To start a new facility on premises – stationery/canteen/uniform shop
Private schools try to offer all the essential facilities for the convenience of students. If there is a stationery unit on the campus, students can purchase prescribed textbooks and other essential items without having to visit markets. A shop for summer and winter uniforms makes it easy to buy the exact uniform as required by the school. While canteens are not “must-haves”, they are good to provide hygienic menu options to the students and staff. School loans may be taken to fund such facilities.
8. For repairs and renovation
A school that already has structures or facilities for education and sports may also need a loan to repair, renovate and improve them. It can digitally apply for such funds on a FinTech company’s website.
9. To purchase new teaching devices, audio-visual equipment
School loans fund the purchase of interactive teaching devices that are becoming increasingly important in the digital age. Educational institutions can borrow to install whiteboards, overhead projectors and other audio-visual teaching aids to make learning more interesting for their students.
10. To add/improve day-boarding facilities
Some private schools offer day-boarding amenities to their students. As a part of this facility, they need to provide healthy meals and areas for rest and recreation. To build and improve such environment, they may need loans that are offered most conveniently from FinTech companies.
As a leading digital NBFC offering loans to educational institutions, Capital Float funds all such requirements of schools in India. To know more about our financing products, feel free to call us on 1860 419 0999.
Oct 24, 2018
The Goods and Services Tax (GST) has been the biggest tax reform in India since 1947. Analysts also expect that it will have a huge impact on various sectors of the Indian economy, especially the service sector. Of the segment comprising banks and non-banking financial companies (NBFCs), the fund-related, fee-based and insurance services will witness significant impact as a result of GST implementation and will see shifts from the way they had been operating earlier.
What is really implied by financial services?
The term ‘financial services’ has not been specifically defined by the GST law. However, to understand the implications of this tax on the financial services sector, we need to consider the supply of goods and services that involve the extension of credit support. These services include but are not limited to:
– Hire purchase
– Conditional sales
– Securitisation or assignment of receivables
– Acquisition or sale of shares and securities
The compliance towards GST can take some effort in the above fields because of the nature of operations conducted by banks and NBFCs concerning credit products, lease transactions, hire purchase, actionable claims and other funds and non-funds-based services.
The GST rate on banking services and services provided by the NBFCs has been raised from 15% to 18% with the execution of this reform from July 01, 2017 onwards. The GST impact on financial services may further be classified into the following sub-sections:
1. Network of branches to be registered separately
Before the implementation of GST, a bank or NBFC with operations spread across India could discharge its compliance on service tax through one ‘centralised’ registration. After GST regulation, these institutions will be required to get a separate tax registration for each of the states they work in.
As a destination-based tax, GST has a multi-stage collection system. In such a mechanism, the tax is collected at each stage and the credit of tax that was paid at the last stage is available as a set off at the subsequent stage of the transaction. This transfers the tax incidence to different entities more evenly, and helps the industry through improved cash flows and better working capital management.
2. Leveraged and de-leveraged Input Tax Credit
Earlier, banks and NBFCs had been majorly opting for the reversal of 50% of the Central Value Added Tax (CENVAT) credit that they avail against the inputs and input services, while the CENVAT credit on the capital goods was given without any reversal conditions. Under GST, the 50% of the CENVAT credit that was availed for inputs, input services and capital goods has been reversed. This leaves banks and NBFCs with a decreased credit of 50% on capital goods, and in turn raises the cost of capital.
However, this can be counterbalanced by the advantages posed by operating one’s business in the new taxation scenario. A unified domestic market can help with more opportunities for expansion and reduced production costs enhancing one’s profitability.
3. Evaluation and adjudication
The impact of GST on banking services and NBFCs will also be felt in terms of evaluation procedures. Service tax was assessed by the particular regulators in the state where a branch is registered. In addition, every registered branch of the concerned bank or NBFC had to validate its position for the chargeability in the respective state and provide a reason for utilising the input tax credit in various states.
The GST assessment will involve more than one assessing authority, and each of them may have a different judgement for the same underlying issue. Although such contradictions can prolong the decision-making process for the financial institutions, the adverse effects of evaluation by one authority can be offset through decisions made by another assessor.
Impact of GST on banking sector – General services
Banks in India have been levying service tax on most transactions enabled by their systems. These include but are not limited to digital fund transfers, issuance of ATM cards and chequebooks, and ATM withdrawals beyond a specific limit. With GST on financial services, these services will be taxed at the rate of 18% instead of the 15% service tax rate that was being charged earlier. For example, if you withdraw money from an ATM other than your bank’s ATM after exceeding the “free transaction limit”, you are typically charged Rs 20 plus a service tax, which comes to around Rs 23. With the imposition of GST, this amount will go up to Rs 23.60.
However, deeper analysis reveals that such an increase in cost should not be considered a negative GST impact on financial services sector. In the long run, banks will be able to transfer the advantage of input tax credit – enabled under GST – to the customers. Furthermore, services like fixed deposits (FDs) and other bank account deposits that were outside the circle of service tax will continue to remain outside the GST ambit.
A major advantage of GST on financial services and other sectors is that it is a transparent tax and has reduced the number of indirect taxes. It integrates different taxes and ensures that the tax burden is fairly divided between different entities involved in the system. In addition, GST is essentially technology based. The advanced software systems used in its calculation and filing works will reduce the chances of manual errors and will lead to better decision making.
Capital Float too experiences the effect of GST on banking and NBFCs. We find ourselves in the 18% tax bracket, and we maintain our statutory lending policies including low-interest rates and quick disbursement of funds. Taking into account the GST impact on financial services sector, Capital Float will continue to provide the best credit solutions to its clients, customized to adapt to the changes brought by GST on SMEs in various sectors.
Oct 24, 2018
The hotel industry is one of the fastest growing domains in India, and, together with the travel segment, it was valued at $136.2 billion by the end of 2016. The implementation of Goods and Services Tax (GST) will help the hotel and travel industry largely by bringing down costs for customers, consolidating the multiple taxes into a single tax value and decreasing transaction costs for concerned business owners. However, certain challenges accompany these outcomes as well.
A look at the conditions pre- and post-GST
Similar to other industries in India, there were multiple taxes applicable to hotel industry. These were chiefly in the form of value added tax (VAT), luxury tax and service tax. For a hotel, if a room’s tariff exceeded Rs 1000, the service tax liability was 15%. With an abatement of 40% allowed on the tariff value, the actual rate of service tax was brought down to 9%. The VAT that ranged between 12% and 14.5%, as well as the luxury tax, was applied over and above this.
The GST impact on hotels and travel industry
Under the GST regime, the hospitality domain gets the advantage of standardised and uniform tax rates. The utilisation of input tax credit (ITC) has also become simpler and better. Complimentary food (such as offer of breakfast with room) that was separately taxed under VAT will be taxed as a bundled service under the GST system.
As a positive effect of GST for hotels, the end cost to be paid by the final consumers will decrease, which will help to attract more tourists and push up the growth of businesses in this industry. Conversely, it will also increase the revenue collection of the government.
The tax rates under GST for hotel industry have been set as:
|Room Tariff Per Day||GST Rate|
|Less than Rs 1000||NIL|
|Rs 1000 – 2499||12%|
|Rs 2500 – 7499||18%|
|More than Rs 7500||28%|
Most hotels in India follow a dynamic pricing policy, where they decide upon the tariffs manually as per the number of tourists expected in a certain season. The tariff, therefore, keeps changing according to the demand and supply forces. Since the GST rates vary for different tariff levels, hotels have to ensure that their billing software also changes the tax rate as per the room tariff throughout the distribution channels comprising travel agencies and online aggregators. Making such changes in the billing systems could take some time.
Positive aspects of GST
The Goods and Services Tax has brought some relief for the hospitality industry through:
Ease of administration
With the implementation of GST, the multiple state and central taxes levied on the tariffs of hotels have been done away with. This has helped to trim down the burden of different procedures of tax application and has resulted in better streamlining of the entire process.
Less confusion for customers
Tourists staying in hotels and availing some special services were largely confused by the multiplicity of taxes in their bills. For most of them, it was difficult to understand the difference between VAT, service tax and luxury tax. Under the GST system, they will see only one consolidated tax on their invoice, which will give them a clearer picture of what they are paying in tariffs and what is the tax charged on them.
Enhanced quality of service
Many tourists and hotel guests have had the cumbersome experience of waiting in the hotel lobby while their bill was being prepared. It often took longer to add the different tax components and prepare the final version of the bill to be paid by the customer. With GST, the managers have just one tax to calculate and that makes the checking-out process from hotels quicker and simpler.
Ease of using input tax credit
Entities in the hotel and travel industry can now easily claim and get input tax credit. They are entitled to get full ITC (input tax credit) on the inputs that they add. Due to the division of revenue between the centre and state governments, the multiple taxes paid before GST regime on inputs – like cleaning supplies, uncooked edibles for meals – could not be smoothly adjusted against the output. The calculation of ITC will be easier in the GST system.
Negative aspects of GST
The GST for travel industry and hotels also comes with its share of adverse impacts. With a taxation rate of 28%, the hotels charging tariffs over Rs 7500 are worst hit, as their final prices for customers will increase significantly.
Looking at the bigger picture, GST can hit the inflow of foreign tourists to India. Other Asian countries such as Japan and Singapore impose tax rates as low as 8% and 7% on their hotel and travel industry. This can become a big factor in making them more preferred tourist locations as compared to India.
Capital Float looks at GST for hotels and tourism as a mixture of simpler, smoother rules and seemingly higher costs & compliance. The trade associations of hotels and restaurants have been protesting for a lower tax rate of 5%, but it starts at 18% for a majority of them. The value of tourism industry in India is projected to grow by up to $280.5 billion in the next 10 years. How well the positive aspects of GST outweigh its negative effects is yet to be seen. Meanwhile, despite the challenges, the credit support for the development of new hotels and restaurants by an NBFC like Capital Float will continue to be consistent.
Oct 24, 2018