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SMEs feel betrayed as Promises Fall Flat
Rajen Kumar
Jul 2009
Jul 2009
Page 1 of 2
“The Indian National Congress pledges a targeted cluster-based approach to the growth of SMEs. There are a very large number of such clusters already in different areas like textiles, food processing, handlooms and handicrafts, consumer goods, khadi, coir and other traditional industries, and engineering. These clusters, mostly in small and medium towns, will be given access to finance, technology and marketing and will be provided vastly improved infrastructure.”
So said the manifesto of the Indian National Congress which is now firmly in the saddle without the help of any crutches, so to say.
The economists say the economy is looking up but millions of MSMEs are looking up to the sky for relief.
The union budget proposed by the UPA government has very little for the SMEs reeling under tough times as a result of recessionary trends. More importantly, no worthwhile steps are taken to support the needier micro and small scale enterprises. The fact remains that at this time of global economic slowdown, MSMEs are the worst sufferers.
The government has announced hikes in allocation of funds to Market Development Scheme and introduced special funds of Rs.4000 crore to be operated by banks for SMEs to revive from the recessionary trends. The stimulus packages announced in the pre-election era have done little for the SMEs. The small and medium entrepreneurs were expecting some solid steps this time.
Silver Lining
For the millions of working people stung by the rising cost of living and salary-freezes or cuts, the budget may have some relief, but not the cure.
However, the Budget has made it tougher for tax evaders, and simpler for small businesses to file returns. Small businesses and service providers now have no reason to shy away from paying taxes because they have been brought under the provision for presumptive taxes. Individuals in the low-to-middle-income groups will save at least Rs 1,030 in tax, benefiting from the Rs 10,000 increase in the income tax exemption limit. Senior citizens will pay at least Rs 1,545 less.
A Welcome Relief
For micro and small businesses, service providers with a turnover of Rs 40 lakh or lower, it will be simpler to file returns as the taxable income will be deemed to be 8% of their total sales. They will not be required to maintain books of accounts or pay any advance tax. Till now, this provision was applicable only to those in the business of civil construction. By giving this benefit of simplicity, the government is trying to bring under the tax net those businesses that are not filing returns for fear of having to maintain books of accounts and other complexities.
This new provision will apply to all individuals, HUFs and partnership firms (excluding limited liability partnerships) from April 1, 2011. The same provision will also be applicable to retail businesses, which were earlier taxed on a deemed income of 5% of their total turnover. However, the provision will not apply to those in the business of hiring or leasing goods carriages (up to 10 vehicles).
But it is those with taxable income of over Rs 10 lakh that have gained more from the Budget. They benefit from the removal of the 10% income tax surcharge as well as the higher exemption level. As a result, their tax incidence at the highest slab has declined to 30.09%, from 33.99%.
This is the first time in many years that the medium enterprises, the group that drives consumption of the mid-market to premium consumer goods and services, has got any concession from the government. It is meant to be a small step in the direction of reforming the tax structure to make it simpler. However, sadly it is the only step taken for SMEs.
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