Extending income tax exemption to MSMEs to be highly beneficial
The Government should introduce a long-term solution in the 2019 Budget that can save the credit-starved MSMEs from their dire state.
2018 saw a slew of measures from the Government of India to boost the performance of small and medium enterprises. However, the sector’s heavy reliance on the banking industry for capital continues to be a key stumbling block, given the banks’ reluctance to lend. With the IL&FS crisis in 2018, the robust credit line that NBFCs offered to small and medium enterprises dried up, making them more vulnerable to insolvency.
R Narayan, Founder & CEO, Power2SME expects the upcoming Budget can ease the stress on the Indian SME sector. “While reforms like restructuring of loan accounts and ‘59 minute portal’ for credit may relieve some stress off the MSMEs, it is imperative that the Government introduces a long- term solution in the Budget 2019 that would salvage the credit-starved MSMEs from their current precarious state. At present, an income-tax exemption of up to 30% is given to companies which have an annual turnover of Rs 25 crore or above. Given that MSME’s have long been coping with the issue of lack of access to formal credit, extending the exemption to the sector would be highly beneficial, as it would help save valuable funds that can be ploughed back into business.”
In addition to this, in order to encourage small and medium entrepreneurs to expand their business, the Government must consider giving exemption on capital gains to owners who sell assets to raise capital for expansion. “Having said that, the policy reforms should focus on easing the liquidity crunch for MSMEs in the long run which can be done by improving the health of financial institutions and encouraging fintech companies to establish credible alternative lending mechanisms. These initiatives will be critical in offering a long-term solution to an ailing sector that is one of the largest employers in India,” he informed.