Role of GST in Promoting Transparency and Accountability in MSME Operations

Abstract

The Goods and Services Tax (GST), introduced in India in 2017, marked a transformative shift in the country’s indirect taxation system. For Micro, Small, and Medium Enterprises (MSMEs), GST has had far-reaching implications not only in terms of tax compliance but also in fostering operational transparency and financial accountability. This review paper explores how GST has contributed to improving visibility in business transactions, formalizing MSME operations, and strengthening the auditability of records. The paper draws insights from government reports, academic studies, and sectoral analyses to understand the mechanisms through which GST has reduced tax evasion, enabled real-time reporting, and enhanced MSMEs’ credibility with financial institutions. At the same time, it critically examines the challenges that hinder the seamless integration of MSMEs into the GST regime, such as compliance costs, digital literacy barriers, and delayed refunds. The paper concludes by suggesting policy reforms and support measures that can further align MSME development with GST-led transparency initiatives.