The Impact of Goods and Services Tax (GST) on the Performance of Small and Medium Enterprises in India: A Longitudinal and Multidimensional Analysis

Abstract

The introduction of the Goods and Services Tax (GST) on 1 July 2017 constituted a fundamental transformation of India's indirect taxation architecture. By subsuming several central and state-level indirect taxes within a destination-based value-added tax framework, GST sought to create a more integrated domestic market, reduce tax cascading, improve compliance, and promote formalisation. Small and Medium Enterprises (SMEs), however, occupy a distinctive position within this reform because their comparatively limited financial, technological and managerial resources can render regulatory and digital compliance proportionately more expensive than for larger firms. This study examines the multidimensional impact of GST on Indian SMEs, with particular emphasis on compliance cost, tax burden, record keeping, registration, transparency, formalisation, ease of doing business, and business performance. A longitudinal mixed-method framework is adopted, combining secondary macro-institutional data spanning 2012–13 to 2025–26 with a proposed firm-level survey of GST-registered SMEs. Official evidence indicates that registered taxpayers increased from approximately 60 lakh in 2017 to more than 1.5 crore by 2025–26, accompanied by substantial growth in e-way bill volumes and average monthly GST revenue, which rose from ₹89,885 crore in 2017–18 to ₹1,48,924 crore in 2022–23. At the enterprise level, however, formalisation and digital record-keeping gains coexist with concerns over compliance expenditure, technological adaptation and working-capital management, with existing literature suggesting that compliance costs may be disproportionately burdensome for smaller firms. The study conceptualises the GST effect as multidimensional rather than unidirectional and proposes a regression-based empirical framework linking GST-related compliance dimensions to SME performance. It is argued that the long-term effectiveness of GST should be evaluated not solely through revenue growth but also through formalisation, administrative efficiency, transaction transparency, productivity and the sustainability of smaller enterprises.