Small and medium enterprises (SME) are backbone of Indian economy. SME contributes 45 per cent of industrial output, 40 per cent of country's total exports and employs over 6 crore individuals. SME can play an important role in 'Make in India' drive of the government. Despite this, SME are offered the treatment of a step-child. As the government is vocal about its 'pro-growth' stance, SME need some incentives in the forthcoming Union Budget.
There is an urgent need to revisit the definition of small and medium enterprise. Instead of using investment as the only criterion, it makes sense to include factors such as number of individuals employed, turnover in the definition. It will make it more broad-based and will make more firms to access the facilities meant for SME.
Government should also set up a fund which will be dedicated to lend money to SME. The fund can help SME which are cash starved and looking for working capital.
The budget should also stick to the fiscal deficit targets and the process of fiscal consolidation should continue. This will offer more headroom for Reserve Bank of India to cut interest rates. SME are the biggest beneficiaries of falling interest rate in the economy. SME also need tax sops in the form of lower rate of corporate income tax. This will ensure that the SME can retain more profits and employ them in new projects. This will help serve dual objectives of higher tax compliance and more job creation.
SME are looking for big growth over prolonged period of time. They are in investment phase and many are deploying technology-driven solutions. However due to the impact of service tax at 12.36 per cent, inputs costs for SME are really high. Vendors supplying to SME should be allowed a lower rate of service tax as compared to their supplies to larger companies.
There is also a need to increase the service tax exemption limit to Rs 25 lakh. Existing limit is Rs 10 lakh and set in 2008. It was reviewed upwards twice in 2007 and 2008 - increasing service tax limit from Rs 4 lakh to Rs 10 lakh. If the aggregate value of services does not exceed Rs 25 lakh in a financial year, then the SME should not be asked to pay service tax. This will help many small entities providing various services.
Comments
0 comment