CII for roll back of alternate minimum tax on MSME

CII has said that tax provision is adversely affecting the commercial viability of small businesses.

Industry body CII has asked the government to consider rolling back alternate minimum tax imposed on companies, mainly on small and medium units, saying the tax provision is adversely affecting the commercial viability of small businesses.

In the forthcoming Budget, the government should provide an enabling environment to Micro, Small and Medium Enterprises (MSMEs) by reconsidering tax provisions like AMT as it affects their commercial viability and discourages them from going for capacity expansion, a CII statement said.

The sector, which is the backbone of Indian economy, contributes 45 per cent to the country's manufacturing output and about 40 per cent of exports, it said.

In order to widen the tax base, last year, the government had imposed 18.5 per cent AMT, a variant of Minimum Alternate Tax (MAT), on sole proprietorships and partnership firms.

"The new levy is an extension of MAT which was introduced by the government to bring zero tax paying companies/bring corporates under the tax net," CII said.

The chamber said AMT proposes to tax small entities at the same rate as that prevailing for large companies except for an exemption of initial income/gains of Rs 20 lakh.

"This limit is highly inadequate and would be insufficient for firms which are planning expansion and modernisation of their units. Levies such as these would force units to remain small and not graduate into large units," CII Director General Chandrajit Banerjee said.

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, he said.

Also, it would be extremely hard for SMEs, a bulk of which fall under category of partnership/ proprietary firms. Such enterprises already face numerous challenges in terms of finance, infrastructure and input costs which adversely affect demand, he said.

In case a complete roll back of AMT is not possible for proprietary or partnership concerns, CII said, then there is a strong case for removing it in tax exempted states.
    

The chamber 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 80 IC or Section 10 AA 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.

Such a move would provide some reprieve to SMEs which are already reeling under the impact of tight margins and increased competition, Banerjee said.