Interim Budget 2019: GST and Income Tax top concerns for MSMEs

The Interim Budget that is all set to be presented on February 1, 2019, by Union Finance Minister Piyush Goyal, is being eagerly awaited by all businesses.

Whether the Interim Budget is populist or not, we could see a slew of measures to boost the MSME ecosystem. This is in line with Prime Minister Narendra Modi launching several initiatives to enhance credit access and boost employment for MSMEs at the launch of the MSME Support and Outreach Programme in November 2018.

PM Modi had noted that after agriculture, MSMEs were the biggest job providers. “If agriculture is the backbone of India's economy, then MSMEs are taking the economy to newer heights,” he had said. He had also launched a portal where small enterprises could avail loans of up to Rs 1 crore in just 59 minutes.

Read about the complete set of initiatives under the new MSME Support and Outreach Programme here.

However, Moody's Investors Service noted that the steps announced by the government to aid MSMEs and farmers will increase the risk of fiscal slippage and push deficit to 3.4 percent of GDP in the current financial year.

"Over the past month, India’s government has announced a range of policies to support the incomes of small enterprises and low-income households. In the absence of new revenue-boosting measures, the policies will collectively make it harder for the government to achieve its fiscal consolidation objectives,” it said.

There were mixed reactions from MSMEs towards the schemes. While small businesses welcomed the new government initiatives, they expressed concern over their implementation. The Interim Budget presented by Piyush Goyal could attempt to respond to and allay these fears.

Further, MSMEs with an annual turnover under Rs 40 lakh were to be exempted from GST after the GST Council doubled their exemption limit. The limit for GST registration was raised from Rs 20 lakh to Rs 40 lakh.

In light of these government initiatives to nurture the MSME ecosystem, what do these small businesses want from the Interim Budget and the full Budget? SMBStory had a chat with some entrepreneurs and stakeholders to find out about their expectations.

R Narayan, Founder and CEO, Power2SME, believes that the MSME sector’s heavy reliance on the banking industry for capital continues to be a key stumbling block, given the banks’ reluctance to lend. “At present, an income-tax exemption of up to 30 percent is given to companies which have an annual turnover of Rs 25 crore or above. Given that MSMEs have long been coping with the issue of lack of access to formal credit, extending the exemption to this sector would be highly beneficial,” he said. “The government must also consider giving exemption on Capital Gains to owners who sell assets to raise capital for expansion.”

Bhupinder Singh, Founder and CEO, Incred, said, “NBFCs have increased their overall market share in MSME credit by around 17 percent till mid-last year, whereas private sector banks’ share only increased by 6.4 percent and public sector banks’ decreased by around 9 percent. I strongly believe that the Budget should have some subsidies for the MSME segment and credit support to enable them to continue growing and borrow effectively. It will help in bridging the prevailing credit gap.”

Micro entrepreneurs echo these sentiments. Thejaswi S, Founder, Koko Boost, said, “From the Budget, we want easy availability of loans for MSMEs and startups, especially for women. PSBs are not interested to give collateral free loans, and we face an endless struggle.”

She also wants the Budget to include the promotion of innovate MSME ideas by funding marketing initiatives.

Prateek Gupta, Founder, Desi Farms (a brand under SNA Milk & Milk Products), said, “The Budget should provide for a reduction of GST on ghee, cheese, and butter. The GST levied on ghee, cheese, and butter is currently 12 percent, which leads to high product prices in the market.”

He added, “I also wish the government focuses on implementing the reforms that the Budget presents. Most of the time, everything looks attractive on paper, but the implementation can be improved. More often than not, there isn’t much progress for us.”

Gaurav Agrawal, Founder, G-tech Print Works, said, “Being an MSME entrepreneur, I expect the Budget to reduce income tax slabs and bring textbooks under five percent GST category. Currently, textbooks are in the zero percent GST category and it results in loss of all GST we have paid during purchases.”

He adds, “We also want the Budget to reduce banking rates for loans and advances for MSMEs. Additionally, we’d like to see special announcements for the effective implementation of the schemes already initiated by the government.”

Kishor Kumar Bohra, Founder, Aarthi Chemicals, said, “The need of the hour is tax exemptions for MSMEs in line with startups. We also need export incentives and easier export/import process. Right now, it’s too tough to gather clarity and information on various customs policies.”

“The Budget should ensure easier lending by banks and at attractive rates comparable with foreign markets, such as interest rates of 4 percent per annum. We also want reduction in GST rates for low turnover micro industries,” he adds. “Easier and practical labour/departmental/pollution laws will be welcomed too. The Budget should ideally also ensure easier availability and subsidies for procurement of land and machinery for setting up new MSMEs.”

All eyes in the MSME ecosystem will be on the Interim Budget as Piyush Goyal presents the way forward for the MSME ecosystem in India. It can be a big turning point for the sector which is still recovering from demonetisation and GST.