SMEpost

FISME pre-budget suggestions to Finance Ministry

Union Finance Minister Arun Jaitley met the representatives from the industry bodies yesterday to hold pre-budget consultation with them.

Federation of Indian Micro and Small & Medium Enterprises (FISME) wanted inter-state GST should precede full-fledged roll out of the game changing indirect tax reforms. FISME said the move would be a “big step” towards helping the MSMEs. Incidentally, over 95 per cent of MSMEs are composed of Proprietorship and Partnership firms.

In the proposal submitted to the Finance Minister for consideration in the Union Budget 2016-17, FISME said, “Lack of inter-state GST continues to be a major stumbling block in trading goods across states. When supplying to governments, absence of inter-state GST puts suppliers of the buying state at a disadvantageous position vis-à-vis the suppliers of other states. With one of the largest share of public procurement in GDP, the impact of this aberration is immense. MSMEs are particularly affected adversely in the current dispensation.”

The industry body suggested that, “Income Tax for enterprises operating in the much desired (by the government) company format may be levied in slabs as available to individual tax payers.”

The MSME association suggested that in the interest of equity and fair play the onus for providing “C” Form for availing concessional tax on inter-state sales should shift to the purchaser from the supplier from retrospective effect.

FISME said, “Rates of Custom Duties on various stages of production – from raw material to finished products may be finely differentiated allowing small breathing space to each of the value added. A study could be commissioned to identify potential sectors and slabs to encourage such backward integration.

The MSME sector is for duty free import of raw materials is allowed for goods to be exported and duty drawback is given for the use of indigenous raw materials. Presently indigenous raw material suppliers keep their price on parity with landed price of imported raw materials.

Small exporters find themselves unable to import raw materials every time and use indigenous raw materials and get duty draw back. The duty drawback rates are low in comparison of custom duty.

The MSME sector wants the duty drawback rates aligned with the custom duty on its raw materials and on calculated quantity based on input-output norms already established. The drawback mechanism should also incorporate the temporary anti-dumping / safe-guard duties levied from time to time.

Another major issue raised by FISME was that the majority of MSMEs fail to graduate from Micro to Small and Medium Enterprises.

“It is observed that the current Capital Gains Tax regime also exacerbate this,” said FISME.

In the present dispensation when one sells industrial property to shift to another location exemption in Capital Gains are allowed only if we shift to: Urban Area to a Rural Area ( 20 Km from Municipal Limits) or Urban area to any Special Economic Zone (54 GA). MSMEs in their growth journey also need to expand and shift to larger locations not-necessarily to the areas defined in the exemption. The fear of attracting Capital Gains Tax acts as a deterrent for expansion.

On this, the apex body opined that MSME may be allowed exemption from CGT if they sell existing space and shift to larger space or add to existing units by selling another piece of property irrespective of location.

The Federation suggested operationalizing Kamath Committee recommendation for sale-purchase of MSME bills.

Public procurement comprises almost 1/3 of India’s GDP.  Utilities –water, electricity Boards etc, are among the largest buyers. Though these utilities are expected to run on commercial terms, their accounting systems and their inventory management systems are obsolete which allow a lot of unscrupulous practices to take place.

FISME suggested that, “Central funds/ assistance ought not to go the utilities/ agencies engaged in providing services commercially but not having: double entry accounting system; and 100% computerization of Inventory with IT based management systems.”

The other suggestions made by the industry body were – Offsets for MSMEs in all Public funded infrastructure projects above a threshold; Reviving State Financial Corporation to realize Make in India etc.