Budget 2016: Direct benefits top MSME wish-list

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Saurabh Gupta | 16 Feb, 2016
The biggest challenge affecting Micro, Small and Medium Enterprises (MSMEs) is most of MSMEs lack financial resources to meet the input cost. MSMEs play a pivotal role in India's economic growth including exports as well as in 'Make in India' programme. Industry experts feel that this year Finance Minister needs to chip in with liberal funding.

Industry experts have suggested various proposals to the Finance Minster in the pre-budget meet for the betterment of MSME sector.

Discussing about their expectations from the upcoming 'Budget - 2016', apex industry body for MSMEs, Federation of Indian Micro and Small & Medium Enterprises (FISME) told SME Times that an Inter-state GST could be implemented prior to the full-fledged Goods and Services Tax (GST). "As the subject being in the central domain, the move does not require the Parliamentary approval," said Anil Bhardwaj, Secretary General, FISME. There is an absence of clarity on the GST implementation.

He said, "There is a need of investment allowance on Capex Section 80-I. Investment allowance on capex leaves MSMEs at present; could be without any lower threshold which will help MSMEs."

Incentive for employment should be given to MSMEs. Any increase in social welfare and bonus expenses may be allowed as a 300 percent weighted deduction for the purpose of tax calculations.

On the Non-Tax side, FISME said, offsets for MSMEs in all Public funded infrastructure projects above a threshold massive public investment in infrastructure like Roads, Ports, Airports, Railways, Power, Smart Cities etc.

The impact could be multiplied if suitable offset clause introduced, added Anil Bhardwaj. All centrally funded projects beyond a threshold say of Rs. 500 crore that say 20 percent of procurement would be done from MSMEs.

He said there is a project financing gap. The State Financial Corporations (SFCs) played key role in creation of first wave of MSME entrepreneurship through 60s and 70s. Now SFCs are defunct. But no replacement of SFCs.

Need to look at SFCs with fresh pairs of eyes. A high level committee may be set up to look at reviving the SFCs and also exploring possibility of initiating similar institutions in PPP or Private mode, he added.

Federation of Indian Export Organisations (FIEO), President, S C Ralhan told SME Times that in the view of current downfall in exports, encouragement to MSME Sector by way of fiscal incentives on their year-on-year export growth would motivate them for aggressive export marketing, which in turn could help in restoring export momentum.

He said, "Inverted duty structure in respect of various items may be given due consideration in the Union Budget as it not only effects exports but also the manufacturing sector and adversely hit Make in India."

The actual refund mechanism for service tax is cumbersome and time taking which blocks the working capital of exporters. Hence, the demand of exporting community is that Service tax should be exempted for exports.

He suggests, at least Service Tax exemption may be provided to the following services:

ECGC Premium, C.F.S. services, C.H.A. charges and T.H.C. Charges for exports.
Bank Charges on collection of Bill and Foreign Currency related to exports.
Service Charges for conversion of inward remittances.
Courier Charges for exports documents and commercial shipments.
Service tax exemption under reverse charge mechanism as it is not rebated under all industry rate of service tax.

FIEO suggests that Terminal Excise Duty (TED) on purchase of Capital Goods from indigenous manufacturers under EPCG Scheme may also be exempted as the current refund process leads to blockage of working capital for a considerable period of time and increase transaction cost.

Marketing of product in overseas markets is also a big issue before MSMEs. This is because most of MSMEs lack financial resources to meet the cost.

The total marketing support extended by DoC under MAI and MDA is insufficient to meet the demand of MSME for export marketing. Government may create an Export Development Fund (EDF) in order to support them on this front. The corpus of the fund should be 0.5 percent to 1 percent of export value so that sizable money is available to promote MSME exports, said S C Ralhan.

He said, "In view of current downfall in exports, MSME exporters may be provided additional exports benefits." Currently, no additional fiscal benefit is available to MSME sector under FTP.

"Government may consider to encourage the Status Holder category of exporters by restoring the benefit available to them under the earlier Policies in the form of Status Holder Incentive Scheme (SHIS)," he added.

Withholding tax to be deducted from non-residents for exports commission payments made during course of business which is 10 percent if PAN details of non-resident are available. If not a penal deduction of 20 per cent is to be made which has to be paid by the exporter adding to business costs/overheads. It is, therefore, requested that non-residents, may be kept out of the ambit of section 206AA, said FIEO Chief.

Sectors such as handicrafts, carpets and agro, exports are largely carried out by the merchants who may be included in the Interest Equalization Benefit Scheme (IES). Merchant exporters in specified sectors were eligible for interest subvention but they have been excluded under the current IES, added Ralhan.