Tax compliance burden of unincorporated sector enterprises in Kerala in GST period

The transition from the VAT to GST was a paradigm shift in India's indirect taxation environment. Unincorporated sector enterprises have to face the challenges of shifting from a record-based state-level taxation to a nationwide digital taxation scenario. This study examines the tax compliance burden of unincorporated firms in the GST period in comparison with the pre-GST VAT period. The study was based on primary survey data predominantly from rural hired worker enterprises.
The study revealed that both in VAT and GST regimes, the firms have to spend on compliance costs compared to unregistered firms. Buyer pressure and the need for formal credit are the key drivers of tax registration among the unincorporated sector firms. The analysis also highlights the use of technology by registered firms, reflecting the increased technological requirements with GST compliance.
The comparative evaluation shows that tax registration imposes a considerable burden on the firms, but the monetary as well as the psychological burden was higher in the GST regime compared to the VAT period. This may be due to increased procedural formalities, digital reporting, and frequent return filing. Since GST was introduced to improve the efficiency of the tax mechanism, it has also increased the compliance cost for smaller unincorporated enterprises, highlighting the need for tailored policies for unincorporated firms.