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2013-02-27

What SMEs expect from Budget?

The forthcoming budget 2013-14 should provide an enabling environment for SMEs, which contributes around 40 per cent of industry output. SMEntrepreneur spoke to industry bodies, investors and entrepreneurs to seek their pre-budget expectations.

The forthcoming budget 2013-14 should provide an enabling environment for SMEs, which contributes around 40 per cent of industry output. SMEntrepreneur spoke to industry bodies, investors and entrepreneurs to seek their pre-budget expectations.

Roll Back AMT on MSMEs

The imposition of Alternate Minimum Tax (AMT) would be extremely hard for SMEs, a bulk of which (97 per cent) fall under the category of partnership/proprietary firms. Such enterprises already face numerous challenges in terms of finance, infrastructure, input costs, inadequate skills, apart from external headwinds, which is adversely affecting demand. Under these circumstances, the imposition of AMT at the specified rate would further erode their competitiveness, act as a deterrent to investment and affect the viability of small businesses.

No doubt, there is a provision in the Budget to exempt enterprises from AMT provided their adjusted total income does not exceed Rs 20 lakh. But this limit is highly inadequate and would be insufficient for firms that are planning expansion and modernisation of their units. Levies such as these would force units to remain small and not become large units. Moreover, it adversely affects business sentiments without adding much to revenue or expansion of tax base.

Under the existing economic conditions, CII has recommended a complete rollback of AMT for SMEs. In case a complete rollback of AMT is not possible for proprietary or partnership concerns, then there is a strong case for removing AMT in tax exempted states. CII is of the
view that identities such as those operating in certain special category states or those reinvesting their profits in SEZ enjoying exemption under Section 80IC or Section 10AA of the Income Tax Act should be kept outside the purview of AMT till the period of availability of such exemption to that particular unit, i.e. five assessment years from the date of commencement of production. Such a move would provide some reprieve to SMEs that are already reeling under the impact of tight margins and increased competition.

Furthermore, CII is of the view that the payment of advance tax by SMEs should be made flexible with the option to pay advance tax during the following quarter. This would help to ease the burden of SMEs, which are already facing payment problems on account of factors such as penalties and high interest rates prevailing on advances received from banks at a time when economic slowdown is affecting profits of micro and small units.

Chandrajit Banerjee, Director General, CII

Tax Credits for Investment Through Angel Groups

As an angel investor network, we would like to make the following propositions:

·         Removal of section 56 (2) (viia) and (viib) altogether for investment by individuals in seed stage companies and create LLP (Limited Liability Partnership) as a tax pass through entity especially for Angel Group investors.

·         Facilitation of investments by the recognition of early-stage investor classes: Angel investors, seed and early-stage venture capital investors, impact investors by the following ways:

1.      All arms of government should acknowledge such definitions (recommended by the Committee setup by the Planning Commission) to ensure prioritisation of incentives to such investing – tax pass through, 10 per cent LTCG, tax credits for investment through Angel Groups or in Category I AIFs as in Singapore, US, etc.

2.      Tax on capital gains on investments by Angel Groups or VC Funds at par with capital gains on investments in listed companies or mutual funds

3.      Simplify IPO requirements including permitting overseas listing without requirement of domestic listing.

 Padmaja Ruparel, President, Indian Angel Network

Need Incentives for Small Businesses

India experienced a difficult economic phase in the year gone by, with the depreciating rupee, fall in exports and decrease in investments underlying concerns of a slowdown. Small business, in particular, felt the pinch.

What India needs now is not a budget of assurance, but of action. We, therefore, expect the Union Budget for 2013-14 will make provisions for more firm, take concrete steps towards the development of the economy and in areas that contribute to economic growth.

A key area we are looking forward to is the development of the Internet infrastructure in the country for the benefit of small business.

A large majority of businesses and manufacturing facilities are still located away from urban epicentres. As such, the government must take initiative to ensure the reach of Internet in Tier II and Tier III cities and towns across the country.

In order to take advantage of information and communication technology to for economic development, the Indian Government last year proposed and approved the National IT Policy. Under its aegis, one of the thrust areas will be to provide fiscal benefits for SMEs and start-ups for the adoption of IT in value creation. We look forward to proposed developments in this front. Increased IT adoption can aid higher e-commerce enablement, providing the much needed impetus for exports by helping to remove barriers to global trade.

We are hopeful that as the Finance Minister focuses on reviving investments in the manufacturing sector, the government will also undertake initiatives to ease funding and cash flows for MSMEs, as well as focus on cluster development and skill development programmes.

A promising initiative announced last Budget was a proposal to roll out GST. While the committee set up by the Finance Minister on GST is now evaluating an alternate model, we would like to see a concrete proposal presented in the upcoming budget. GST can go a long way in improving India’s industrial competitiveness and providing solutions to slowing industrial growth.

Khalid Isar, Country General Manager, Alibaba.com India

Minimise Statutory Compliance Requirements

I would like to convey that this is a very exciting time for entrepreneurs and small business owners in the country, especially in the field of e-commerce. The government’s support by way of effective policy can prove to be a catalyst to boost the growth of the Indian e-commerce sector. From the policy front, I think many steps need to be taken like minimising statutory compliance requirements, one-window clearance for all types of indirect taxes, increasing the monetary limit for excise duty exemption given to SMEs from Rs 1.5 crore, raising the monetary limit for auditing and maintenance of accounts for small enterprises under the IT Act as well as raising monetary limit provided for the registration and payment of service tax to Rs 25 lakh. From the industry working point of view, e-commerce companies would greatly benefit from the introduction of progressive corporate taxes depending on the company’s investment/turnover, implementation of GST would remove the hassle of various tax components to be considered and smoothen the process and also bring down the service tax to eight per cent. Capital expenditure should be encouraged in the SME sector by the way of deduction/rebate, refund of taxes paid on capital expenditure, refund of import duty etc. and also enable easier borrowing options for the companies in the e-commerce and SME sector by reduction in interest rates and easy loan schemes for raising funds through debt.

Ishita Swarup, CEO & Co-founder, 99labels.com & CEO & Founder, 9rasa.com

Be Less of an Economist and More of an Entrepreneur, Mr Prime Minister

Budget 2013 will come at a time when the expectations of the aam aadmi as well as the business wallahs seem to be at the lowest. Even the diehard optimist and “shining India” backers seem to have accepted the malaise of corruption, social chaos, circus of politics and economic policy paralysis as the new normal for India. So much so that any really bold or imaginary move by the bourgeoisie wise men of the government of India may actually catch everyone by surprise enough to send the ever slowing economy into an adrenaline induced shock! As a representative of the SME segment waiting for such a miracle, here is what my fairly simple expectations are:

1.  Expand the CGTSME to offer support up to Rs 5 crore and provide a framework for participating institutions to offer analogous credit guarantees or lines of credit in foreign currencies, which is a key to support business development expansion for export centric SMEs.

2.  Allow R&D investment to be tax deductible at 200 per cent and training expense to be tax deductible at 150 per cent, this will encourage increased investment in skill building for knowledge-based industries.

3.  Provide budgetary support for expanding Industry-Academia collaboration in institutions of excellence – with the freedom to attract top flight corporate talent to manage and participate in them.

4.  Create a version 2.0 of the STPI scheme at least for Tier 2 and Tier 3 cities that missed on the 10A and 10B regime lead employment generation. Even if it is not a 100 per cent tax rebate – one of the routes could be to have a special class of “lower deemed tax rate” – allowing the SME to remain competitive with other emerging destinations.

Lavanya Rastogi, President, OSSCube

Grants for Setting Training Academies

We are very optimistic about the Union Budget 2013, these are the two main things on my wishlist for the Budget this year:

  1. Reduction in Service Tax

·         We would like to see service tax on spa services reduced from 12 per cent to 6 per cent in order to make them more affordable.

·         Since the time-frame for the introduction of GST seems indefinite, a reduction in service tax levels will help in keeping spa services affordable.

  1. Incentives for skill development and employment generation

Creating jobs in spa industry: The spa industry is a manpower-intensive industry and has the potential to provide large-scale employment. However, the investment in training infrastructure is inadequate.

Since skill development and job creation are two important national priorities, we would like to see some grants or incentives in the Budget for spa players that invest in setting up training academies and run vocational courses with the objective of providing jobs.

Anurag Kedia, Director, The Four Fountains Spa

Aid Hospitality Industry

Today the tourism and hospitality industry in India contributes around 6.23 per cent to the national GDP and 8.78 per cent of the total employment in the country. The constant transformation has made the Indian hotel industry more functional and practical and has carved a niche for itself globally. With the continued growth in India's GDP, improvement in the per capita income, and increased aspirational spending, the Indian hospitality sector is expected to grow faster than most countries around the world.

High inflation has plagued the hospitality industry since very long and the fluctuation in prices has in turn negatively affected the hospitality industry. The steep rise in prices (at a rate of 10.79 per cent) of raw materials like sugar, oil, vegetables and fuel has put an additional pressure on the food and beverage industry to maintain their profit levels. It has become unfeasible to source commodities form the local vendors at a reasonable and uniform price.

The government should focus more on supporting the private players in this segment and earnestly declare tourism as priority sector. Subsidy and tax exemptions should be given to different formats of hospitality industry to boost the growth of this sector. We would want the government to help control the price variation by regulation in fuel and raw material prices so as to aid hospitality industry and help them make profits without shifting the pressure to the consumers.

HA Mishra, Chairman and Managing Director of Foodesign Hospitality Systems Pvt Ltd 

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