1) Reduced corporate rate tax
Finance Minister Arun Jaitley believes that to stay competitive, India has to come up with globally compatible tax rates. Corporate tax rates range between 16% and 25% across Asia. Experts believe that reducing our rate to 25% from the current 30% rate will serve a twin purpose. It will rationalise the tax rates and encourage greater investment in the country. In the last budget, the government had expressed the wish to reduce the corporate tax rate. This has made the SMEs hopeful this year.
2) Reduced minimum alternative tax (MAT)
Demonetisation has affected people badly. One of the best ways to assuage their grief is to extend some tax relief. Apart from corporate tax, the government may tweak the MAT rate too. The current MAT rate is 18.5%. Experts expect only a marginal change in it, though.
3) Reduced personal income tax
Another relief to SMEs could be a lower income tax. Demonetisation has hit consumer spending capacity hard. Reduced personal income tax limits would mean more disposable income in the hands of consumers. This, in turn, would mean more spending. Thus, SMEs could expect a higher turnover after quite a long slowdown in business.
4) Boost to a cashless economy
The demonetisation demon did not spare anyone. The shortage of cash in the economy led to a surge in digital payments. The government tried to ease the misery of the people. It offered incentives to convince people to embrace a cashless economy. A further encouragement by way of incentives would be a much-needed move for SMEs. There are about 5.8 crore SMEs and micro-SMEs in the country now. Yet, only 14.4 lakh accept debit cards.
5) Lower interest rates
SMEs now contribute to only 8% of the GDP. But experts say India’s manufacturing SMEs can contribute to 50% of the GDP. Yet, this seems a distant dream without government support. Lower borrowing rates could be a way to ensure active participation of the SMEs. Last year, the government announced that it would enhance the credit guarantee scheme for SMEs. It now guarantees loans of up to Rs 2 lakh instead of Rs 1 lakh. This has improved the overall scenario. The government must strengthen this aid by announcing lower interest rates on borrowing.
SMEs have emerged as a powerful sector over the past five decades. With more than 6,000 products, they contribute to 45% of the total manufacturing output and 40% of exports. SMEs have enormous potential to speed up economic growth in the country. This potential needs a boost in the form of government support. Will the upcoming budget give the SMEs what they expect? Wait and watch.
Source: Yahoo Finance