International Science Community Association Research Journal of Management Sciences 15 2 2026 05 6 Impact of Goods and Services tax on Micro, Small and Medium enterprises in Karnatka, India 1 5 EN Madar Krishnappa 1 KRCES GGD ARTS, BMP Commerce and SVS Science College Bailhongal, Bailhongal, Karnataka, India > Research Paper 2026 4 5 2026 05 6 The introduction of the Goods and Services Tax (GST) was aimed at establishing a unified and efficient indirect tax system in India; however, its impact on decentralized rural production systems remains inadequately examined. This study investigates the effect of GST on cost structures, pricing behaviour, and profitability of micro, small, and medium enterprises (MSMEs) in the rural textile sector of Karnataka. The findings reveal a significant “pincer effect,” wherein rising input costs and rigid market conditions have led to a decline in net profit margins from 12.80% to 10.15%, indicating that these enterprises function as “price takers” and are unable to shift tax burdens onto consumers. The study also highlights a substantial digital divide, where lower educational attainment and limited digital literacy increase compliance complexity and administrative costs. Furthermore, delays in Input Tax Credit (ITC) refunds contribute to persistent liquidity constraints, compelling enterprises to rely on high-interest informal credit sources. Although recent GST rationalization measures have attempted to address structural inefficiencies, their effectiveness at the grassroots level remains limited. The study concludes that while GST has enhanced formalization, it has simultaneously imposed operational challenges on rural MSMEs, thereby necessitating targeted policy interventions focusing on simplified compliance mechanisms, faster refund processes, and digital capacity enhancement for sustainable and inclusive growth. Copyright@ International Science Community Association