Authors: Assistant Professor Dr.S.Mahalakshmi, Assistant Professor Ameer Ulla
Abstract: The introduction of the Goods and Services Tax (GST) in India marked a paradigm shift in the system of indirect taxation, replacing it with a uniform framework for the entire country. GST compliance, for Micro, Small and Medium Enterprises (MSMEs), which make up a significant share of India's economy, has been an important factor affecting their working capital manage-ment. This paper provides an empirical study of the influence of GST compliance on different elements of the working capital of 500 MSMEs operating in the manufacturing, trading, and services industries using a mixed-method approach of financial statement analysis (GST compli-ance before 2015-17 vs. after GST 2018-2025) and surveys. It is established that, on average, due to GST compliance, there was an increase in the working capital of 22%, mainly due to the delay in receiving ITC refunds and blocked input taxes. Meanwhile, companies complying with GST have demonstrated increased efficiency in managing inventories (decrease in days by 14%) and decreased logistics costs by 18%. A two-stage least squares regression model has shown the effect of the moderating variables such as firm size, digitization, and professional assistance in tax matters.
