MSMEs seek faster GST refunds, simpler input tax credit rules to ease liquidity strain: Deloitte survey

India's micro, small and medium enterprises (MSMEs) have expressed strong confidence in the Goods and Services Tax (GST) regime while calling for the next phase of reforms to focus on faster refunds, simpler input tax credit (ITC) rules and measures to ease working capital pressures, according to Deloitte India's GST@9 Survey.

The survey released on Saturday found that about 99% of MSMEs hold a positive or neutral view of GST, signalling growing acceptance of the indirect tax system nearly nine years after its implementation.

Liquidity-related reforms emerged as the top priority for businesses. Around 89% of respondents supported the automatic payment of interest on delayed GST refunds and pre-deposits, underscoring the need for quicker release of funds. Nearly 88% favoured invoice-based ITC eligibility, while 87% backed a quarterly tax payment mechanism to simplify compliance.

The findings suggest that MSMEs are now looking beyond GST adoption and are seeking reforms that improve operational efficiency and free up working capital.

"India's MSMEs create a third of our nation's output and nearly half of its exports. GST is a key enabler in the functioning of the nation's supply chain and in creating a transparent, formal ecosystem. The next generation of reforms must enable efficiency and liquidity by improving refunds, simplifying Input Tax Credit rules and enabling seamless credit utilisation. Tax competitiveness can enable businesses to scale faster and strengthen India's position as a global manufacturing and services hub," said Gokul Chaudhri, President, Tax, Deloitte South Asia.

The survey also highlighted concerns over working capital getting locked due to inverted duty structures. About 69% of MSMEs supported expanding the inverted duty refund framework to include input services and capital goods, while 63% favoured further GST rate rationalisation to reduce inversion-related inefficiencies.

Additionally, 51% of respondents advocated year-end refunds of accumulated ITC balances and 49% supported provisional refunds for past tax periods.

"India's MSMEs also highlighted the need to address working capital constraints arising from inverted duty structures. Nearly 69% of respondents support expanding the inverted duty refund framework to include input services and capital goods, while 63% favour further GST rate rationalisation to reduce inversion-related inefficiencies. In addition, 51% of MSMEs advocate for year-end refunds of accumulated ITC balances, and 49% support the introduction of provisional refunds for past periods," said Mahesh Jaising, Partner and Indirect Tax Leader, Deloitte India.

Beyond liquidity, respondents also called for broader structural reforms. Around 72% supported a centralised audit mechanism, 70% favoured allowing Reverse Charge Mechanism (RCM) liabilities to be paid through ITC, and 64% sought a simpler GST rate structure with targeted exemptions to improve ease of doing business.

The survey also found rising awareness of GST reforms among MSMEs. Recognition of quarterly return filing increased more than fivefold, from 12% in 2023 to 67% in 2026, making it the most widely recognised reform among respondents.

The survey, titled The Next Phase – GST 2.0, received responses from 1,096 senior executives across industries and organisation sizes, capturing industry views on GST's evolution and priorities for future reforms.