• Money
• News Impact

The Small and Medium Enterprises sector is an important cog in the wheel for development of the Indian economy. The SMEs’ contribution of 8 percent of the country’s GDP, 45 percent of the manufactured output and 40 percent of exports and provision of employment to about six crore people, indicates the pivotal role played by this sector. With the sector witnessing a strong resurgence in the wake of various incentives and stimulus packages announced by the Government, it had pinned its eyes on the Union Budget with hopes of further policy initiatives in order to bolster the growth story. The budget proposes to increase the allocation of funds to the sector from Rs.1,794 crore to Rs.2,400 crore, which will be spent for the development of the sector based on the recommendation of the High-Level Task Force. Also the Finance Minister has extended the interest subvention of 2 percent on pre-shipment export credit up to March 31, 2011.

A fillip to the food processing industry in terms of setting up additional food parks would have helped SMEs in this sector. A welcome change has come in the form of enhancement of various limits which will ease the compliance burden for SMEs.  Businesses with a turnover of up to Rs.60 lakh will now be exempted from the obligation to audit their accounts. Increase in the threshold limits of various payments for deduction of tax at source will also help SMEs.

Further, it has been clarified that conversion of a company or a partnership firm into a Limited Liability Partnership will be tax neutral, subject to satisfaction of certain conditions. This will definitely help existing SMEs migrate to an LLP structure yielding commercial efficiencies.

Additionally, proposals such as availability of full CENVAT credit on capital goods in a single instalment, facility of payment of excise duties on quarterly basis, exemptions/concessions to specified units, should improve cash flows.

An outright exemption from Special CVD of 4 percent on specified pre-packaged goods for retail sale, instead of post import refund, would benefit the importer-traders operating on a small to medium scale.

On the tax front, the government seems to have missed the bus in terms of introducing a progressive tax regime for the SME sector and slashing the rate of Dividend Distribution Tax. To add to the woes of the sector, the biggest dampener definitely is the proposed hike in the rate of Minimum Alternate Tax from 15 percent to 18 percent of the book-profits.

Also, the depreciation rate in respect of plant and machinery could have been increased from the present 15 percent to the previous 25 percent, so as to reflect its typical useful life. The scope of presumptive taxation could have been widened to cover SMEs in all sectors.

Also the increase in rate of excise duty from 8 percent to 10 percent and the widened ambit of service tax, would adversely affect the SME sector, where the turnover is below the taxable threshold limits, as input procurement costs would increase, with no ability to set-off the same against output duty/tax liability.

All in all, from an SME view point, more was expected based on the pivotal role it has played in the economy and it will have to wait for one more year to get its due share.

©Entrepreneur February 2010

Tags:
Budget, Budget 2010, small business, SME