The government has recognised that demonetisation has negatively impacted the Micro, Small & Medium Enterprises significantly. Added to this is the need for them to comply with Goods & Services Tax.A large number of MSMEs deal with large corporations and that necessarily needs them to be registered under GST. While the GST Council has attempted and continues to work on easing compliances, the fact remains that they need easy access to working capital requirements.

It has been recognised that this sector can create significant job opportunities and hence the cash flow challenges faced by this sector need to be addressed. Towards this objective, the Finance Minister has taken a dual approach for MSMEs. First one is in terms of the ease of financing and the second is by way of tax concession.

He has proposed that the public-sector banks and corporates will be on-boarded on Trade Electronic Receivable Discounting System (TReDS) platform and link this with GSTN. This will enable the MSMEs to get faster relief for GST input credits and unblock their funds.

He has also proposed to revamp the online loan sanctioning facility for MSMEs so the banks are able to take prompt decision to release funding. It is also proposed to set a target of ₹3 lakh crore for lending under MUDRA yojana, which will also benefit the MMSMEs. It is recognised that NBFCs can be powerful vehicle for delivering loans under MUDRA. The government will review the refinancing and eligibility criteria set by MUDRA for better refinancing of NBFCs to assist in dissipation of loans to MSMEs.

Alternative funds

Recognising that venture capital funds and angel investors also help in the growth of MSME sector, he has promised to further assist the alternative investment funds regime to strengthen the environment for their growth and successful operation in India. The industry body representing this industry has already made several proposals to the Finance Ministry and it can be hoped and expected that their recommendation will get addressed to achieve the objectives set by the Finance Minister.

On the tax side, the Finance Minister has extended the reduced 25 per cent tax rate to companies with turnover not exceeding ₹250 crore. The jump for this lower tax rate from a threshold of ₹50 crore to ₹250 crore is significant and will benefit almost all the MSMEs. It would help them more if they were to be exempt from the levy of minimum alternate tax. MSMEs engaged in the manufacture of apparel and footwear and leather products would get a deduction of 30 per cent of additional employee cost incurred. The minimum number of days the employee has to be employed has been reduced to claim such benefit.

(The writer is Executive Director, Khaitan & Co)

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