20 August 2017

RSS Feed

Union Budget 2017 Leaves Small Enterprises Wanting More

E-mail Print PDF

The importance of the micro, small, and medium enterprise sector to India’s economy cannot be over-emphasised. According to an estimate in the annual report for 2015-16 of the Ministry of micro, small, and medium enterprises (www.msme.gov.in), there are about 510 lakh working enterprises in the country. These units collectively employ approximately 1,171 lakh people.

Budget 2017 has attempted to boost the MSME sector with a number of initiatives. Here are the some of the specific measures that could have a positive impact on the country’s small enterprises.

1. Lowering the income tax rate for certain companies

The current income tax rate for companies is 30%. The new budget proposes to reduce the rate to 25% for those companies that have an annual turnover of Rs 50 crores or less. According to 2015-16 data, the number of companies that file tax returns are 6.94 lakh. Of these, 6.67 lakh would get the benefit of a lower tax rate.

This is a major concession and could have several benefits.

  • The extra cash in the hands of individual companies could lead to greater investments and employment.
  • Smaller companies could become more competitive vis-à-vis larger firms.
  • Proprietorships and partnerships would have an incentive to get themselves registered as companies, a step that would lead to the adoption of higher  governance  standards.

2. Businesses with sales of less than Rs 2 crores to pay presumptive tax on 6% of turnover instead of 8%

Under the existing income tax laws, certain eligible businesses that have gross receipts lower than Rs 2 crores are eligible to pay tax on a “presumptive” income of 8% of their sales turnover. Availing this benefit disallows the claim of other income tax concessions.

In the current budget, presumptive income of 8% has been lowered to 6%. This reduction applies only to payments received through cheque/demand draft/electronic payment.

This is a measure that is intended to give a fillip to the government’s drive to encourage digital payments. For eligible businesses, it could translate into a saving of 25% of their total tax liability.

3. Doubling of the lending target under the Pradhan Mantri Mudra Yojana

The Micro Units Development & Refinance Agency Ltd (MUDRA) is a financial institution that had been set up last year by the government with the intention of promoting small enterprises in the country. Its loan products include:

  • Shishu  - loans up to Rs 50,000
  • Kishor – loans between Rs 50,000 and Rs 5 lakh
  • Tarun – loans between Rs 5 lakh and Rs 10 lakh

MUDRA refinances the loans made under its schemes by banks, non-banking financial companies (NBFCs), and microfinance institutions (MFIs). The government had set a target for disbursing Rs 1,22,000 crore under MUDRA in the period from April 2016 to March 2017. This figure has already been exceeded.

For the year 2017-18, the lending target has been enhanced to Rs 2,44,000 crore, a step that should contribute to a sharp rise in credit for the smallest enterprises.

4. Focus on training India’s youth

Small organisations often find that they are unable to attract skilled manpower. The non-availability of adequately trained personnel can seriously hamper an enterprise’s growth plan. Budget 2017’s announcement of the Skill Acquisition and Knowledge Awareness for Livelihood Promotion Programme (SANKALP) attempts to address this issue.

SANKALP will provide market relevant training to 3.5 crore young Indians.

In addition to the SANKALP initiative, the budget has proposed to hike the number of Pradhan Mantri Kaushal Kendras from 60 to over 600. These Kendras provide training in a number of activities ranging from agriculture and automotive to electronics and logistics. A complete list is available here.

The budget also proposes to set up 100 India International Skills Centres. These centres will offer advanced training and courses in foreign languages for those seeking job opportunities in other countries.

5. Helping India’s Startups

The country’s startups have got several tax concessions in this year’s budget. Firstly, they will gain from the reduction in income tax rates from 30% to 25%, a reduction available to all companies that have a turnover less than Rs 50 crore.

A second benefit, which is targeted specifically at startups, relates to the profit-linked deduction that these firms were entitled to for any three consecutive years out of the first five years from the date of their establishment. Many startups are initially loss-making and it can be several years before they start making profits. To address this issue, the period during which this benefit can be availed has been extended from five years to seven years.

The new budget has also relaxed the conditions to be fulfilled to carry forward losses for certain categories of startups. Earlier, it was necessary to satisfy the condition of the continuous holding of 51% of the voting rights in a startup. This rule has been altered and now it is only necessary for the promoter’s holding to continue unchanged.

Has the budget done enough for India’s small enterprises?

Although budget 2017 has touched upon many areas that impact small enterprises, it has not really made any big-bang announcements targeted at India’s MSMEs. One area that required greater attention was that of the availability of bank credit for small and medium enterprises.

With many of India’s banks reeling under the impact of high levels of non-performing assets, there is a reluctance to approve fresh loan applications. The budget could have initiated some measures to incentivise banks to make new advances.

Many of the country’s small enterprises are still recovering from the ill-effects of last year’s demonetisation drive. They could have benefited from some specific incentives to help them make up for the contraction in business volumes that many of them faced. Unfortunately, budget 2017 has not delivered on this count.

-

Ravinder Kapur

-       Ravinder Kapur is a Chartered Accountant and has been affiliated with various interests in the financial services industry for more than 30 years. His financial expertise includes the vehicle and automotive sectors, as well as corporate finance.

 



Get the Flash Player to see this player.

Follow SEI

Facebook Twitter Linkedin Youtube RSS Feed
Small Enterprise India Newsletters

Ask GURU

Take Our Online PollVoice your opinion
What do you expect from the StartUp India Action Plan?

Stock Market