New Delhi
MSMEs are the backbone of the Indian economy, contributing significantly to GDP, overall employment and exports. According to an estimate, MSMEs have a 30 percent share in the country's GDP. There is about 45 percent in exports. About 12 crore people get employment in this sector. In such a situation, this sector has high expectations from the Finance Minister in the upcoming budget. According to the recent GST@7 survey conducted by Deloitte, 78% of MSMEs have supported GST. Tax compliance automation, e-invoicing and issuing timely circulars/instructions on controversial tax issues emerged as the top performing areas for the government in the survey. MSMEs are still facing some challenges, especially with GST compliance.
What does this sector want in the budget?
Harpreet Singh, partner, Deloitte India, and Gagan Gugnani, its associate director, told ETA about the demands of MSMEs that if the payment is not made within 180 days, taxpayers will have to reverse the input tax credit along with interest. This stringent ITC condition should be relaxed for MSMEs, giving them relief from compliance. The government is keen to implement e-invoices in a phased manner as a measure to curb fake invoices, increase transparency and streamline tax compliance. Currently, the limit for e-invoice is Rs 5 crore.
MSME taxpayers are not very aware of this and are dependent on third parties to issue e-invoices on every transaction. This compliance can be relaxed for MSMEs in several ways, such as enabling mobile apps to generate e-invoices, exemptions to specific sectors, etc. MSMEs who are eligible to pay RCM liability by using turnover limit or ITC may be considered for exemption from RCM tax liabilities. MSMEs should be allowed to set off tax due on bad loans. The composition scheme provides a simplified tax payment option for small taxpayers with an eligibility limit of Rs 1.5 crore. Increasing the limit may allow more small businesses to avail the scheme.
On an average, MSMEs employ 1.7 workers
On the other hand, Lakshmi Venkataraman Venkatesan, Founder and Managing Trustee, Bhartiya Yuva Shakti Trust said, “Due to the sheer numbers, the 4.62 crore micro enterprises including informal enterprises, which make up 98.3% of India’s MSME sector, need special attention. These units, employing an average of 1.7 workers, suffer from lack of efficiency and economies of scale. We are looking forward to policies in the Union Budget that promote easy access to finance for these entrepreneurs under CGTMSE, Ease of Doing Business and thereafter provide mentoring and support for growth and sustainability. We hope the government introduces simplified GST returns. Though the Government of India has introduced timely payments to MSMEs within 45 days, it should be implemented in letter and spirit to avoid exploitation by big industry and the public sector.”
The Union Budget may introduce annual certification by statutory auditors on payments made within 45 days or include a “Note on Account” in the audited balance sheet for delayed payments. As India strives to achieve a GDP of US$ 5 trillion and the status of the third largest economy, the contribution of MSMEs, especially micro enterprises in rural areas, cannot be underestimated.
