A new policy proposal suggests allowing small and medium enterprises to pay Goods and Services Tax (GST) on a quarterly basis instead of monthly, addressing a fundamental mismatch between tax obligations and cash flow realities in Indian supply chains.

The Cash Flow Challenge

The proposal, put forward by a corporate advisor, highlights a structural problem facing small businesses under the current GST framework. Payment cycles of 90-120 days have become routine across most sectors, with these terms typically imposed by larger buyers who possess greater bargaining power and capital access. Small suppliers often comply with these extended payment terms because refusal frequently results in exclusion from future business opportunities.

Under the current system, GST becomes payable on invoices rather than collections, creating a significant timing mismatch for smaller firms. The following table illustrates the impact:

Scale of the Problem

The proposal indicates that delayed receivables owed to small firms amount to several trillion rupees, representing working capital that remains locked within supply chains. These funds would otherwise circulate through wages, inventory cycles, and incremental investment. Many firms are forced to bridge liquidity gaps through informal credit, short-term borrowing, or deferment of statutory obligations.

The imbalance extends beyond private sector supply chains, with public sector enterprises and government-linked buyers also frequently delaying settlements beyond prescribed limits despite formal payment timeline rules.

Proposed Solution Framework

The quarterly payment proposal would recalibrate the interaction between tax obligations and cash flows by aligning tax outflows more closely with realized cash flows. Key features of the proposed reform include:

• Turnover-based eligibility: Using turnover thresholds to determine which businesses qualify
• Maintained reporting: Continuing monthly reporting requirements for administrative oversight
• Phased implementation: Gradual rollout to preserve fiscal visibility
• Compliance filters: Supplementing turnover criteria with receivables profiles and compliance history

Administrative and Fiscal Considerations

The proposal acknowledges that GST is a tax shared with states that depend on predictable inflows for budget management. The suggested design would preserve fiscal visibility while offering smaller firms better cash cycle management through careful calibration of turnover thresholds and retention of monthly reporting requirements.

Economic Impact Potential

The author notes that small and medium firms contribute approximately one-third of India's economic output and employ a significant share of the workforce. The proposal suggests that releasing even a fraction of the capital currently locked in supply chains could have far-reaching effects without requiring fiscal expenditure or regulatory forbearance.

The reform would address liquidity constraints without altering the fundamental tax incidence, allowing the state to collect revenue in full but at a timing that better reflects economic reality rather than accounting abstractions. However, the proposal acknowledges that quarterly GST payments alone would not resolve the deeper issue of delayed payments by dominant buyers, which requires stronger enforcement of existing payment discipline laws and more credible penalties.

An analysis of India's Goods and Services Tax (GST) system has highlighted both its achievements and potential areas for future reform, particularly focusing on simplification measures for small businesses.

GST System Achievements

The assessment acknowledges the significant accomplishments of the GST framework in transforming India's tax landscape. The system has successfully unified the country's previously fragmented tax structure and established a common market across states. These achievements represent fundamental changes to how taxation operates in India, creating a more streamlined approach to indirect taxation.

Proposed Reform Direction

The analysis suggests that the next phase of GST development should prioritize compliance simplification. With trust now embedded in the GST system and robust technology infrastructure established, conditions appear favorable for implementing additional reforms.

Implementation Considerations

The proposed reforms aim to balance two key objectives: supporting small sellers through simplified processes while ensuring revenue integrity remains intact. The analysis indicates that the existing technology infrastructure provides a solid foundation for implementing these changes.

Current System Foundation

The assessment notes that trust has been established within the GST framework, which could facilitate the acceptance of new reform measures. The robust technology infrastructure already in place is identified as a key enabler for potential simplification initiatives.

The analysis presents PAN-based GST registration as a potential pathway for achieving these dual objectives of simplification and revenue protection in the Indian tax system.