The State Bank of India (SBI) has cautioned against overzealous tax enforcement actions targeting small businesses, warning that such moves could undermine the gains of formalisation achieved under the Goods and Services Tax (GST) regime. The observation was made in a recent SBI research note, which analyzed emerging trends in tax administration and compliance pressure on micro, small, and medium enterprises (MSMEs).
The bank pointed to a recent incident in Karnataka, where several small traders and shopkeepers in Bengaluru reportedly received disproportionately high tax notices based on digital financial footprints, particularly UPI transactions. This, the report warned, risks pushing informal businesses back into the cash economy, a reversal that could defeat the central goal of the GST rollout—economic transparency and broad-based formalisation.
“Balance Enforcement with Sensitivity,” SBI Advises Authorities
While acknowledging the government’s intent to crack down on tax evasion and accurately map economic activity, the SBI report urged a measured approach to tax enforcement. “Such enforcement must be balanced with sensitivity,” the report said. “The risk is that overly aggressive scrutiny could drive small businesses back into the informal, cash-based economy, undermining the very purpose of formalisation.”
SBI highlighted that the GST ecosystem, introduced in 2017, has significantly increased accountability and widened the tax base, but stressed that its long-term success hinges on inclusivity—especially for low-margin, high-volume businesses that rely heavily on digital transactions but operate with limited financial literacy and formal advisory support.
Inclusivity Over Intimidation: SBI’s Call for Equitable GST Evolution
SBI’s stance adds to growing concerns among policy watchers and trade associations about the intensifying compliance burden on small and micro enterprises post-pandemic. The report advocates for a supportive compliance environment, particularly for businesses newly integrated into the formal system via digital payment platforms, GST registration drives, and input tax credit mechanisms.
“GST has laid the foundation for greater accountability and revenue generation, but its long-term success will depend on ensuring that it empowers all stakeholders—especially small traders—instead of penalising them,” SBI noted.
The report comes amid wider debates on tech-driven tax scrutiny, AI-based risk assessment models, and automated red-flagging of businesses based on transaction anomalies. SBI’s suggestion to temper enforcement with context and compassion is likely to resonate with policymakers tasked with both increasing tax revenue and sustaining economic resilience in India’s vital MSME sector.