In run-up to the Union Budget 2011 to be presented next month, Micro, Small and Medium Enterprises (MSME) have demanded tax incentives in the annual financial statement to maintain their competitiveness vis-à-vis large industries.
MSMEs maintained the sector was vital for the socio-economic development and equitable distribution of wealth, human capital and other resources.
The sector accounts for 45 per cent of India’s manufacturing, 40 per cent of exports, 17 per cent of Gross Domestic Product (GDP), provide employment to 60 million people with a product range of 8,000. There are estimated 25 million MSMEs in India.
“In present situation, MSMEs are facing double whammy. While, we get industrial inputs, raw material and credit at higher rates, our products sell cheaper due to cut-throat competition,” MSME chamber Indian Industries Association (IIA) president Anil Gupta told Business Standard.
Gupta, who was a member of the prime minister’s MSME taskforce, said unless some tax benefits were provided the competitive edge of the sector would be blunted.
The industry has welcomed the proposed uniform Goods and Services Tax (GST) regime, so that a whole lot of direct/indirect levies viz Cenvat, service tax and Value Added Tax (VAT) are subsumed in it.
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“However, the concerns of MSMEs about GST’s impact on them should be addressed beforehand by dialogue or a white paper on the proposed system and its modalities which should be discussed with various MSME associations,” he added.
In its memorandum to union finance minister Pranab Mukherjee, IIA has recommended several other pro-MSME measures spanning tax, labour and audit issues. Uttar Pradesh is home to over three million MSMEs, including both manufacturing and the service sector.
IIA has recommended the states be restrained from levying, in addition to VAT, taxes prescribed by the empowered committee, which had laid for only two basic VAT rates of four per cent and 12.5 per cent, plus a specific category of exempted goods and a special VAT of one per cent for gold and silver ornaments.
“The competitiveness should be measured on the basis of manufacturing cost and not tax rates, as is the case in Uttar Pradesh, where UP-based industries pays VAT at 13.5 per cent compared to two per cent paid by industries located in other states,” he lamented.
Exemption limit of excise duty has been wished at a minimum of Rs 5 crore instead of Rs 1.50 crore.
Besides, the industry wants amendments having effect on taxability should not be implemented retrospectively, while notifications give adequate time for adoption.
IIA has advocated for contractual services in small and medium enterprises (SMEs) and avoiding stringent labour laws for ensuring faster employment generation.