Govt mulls fiscal concesion to MSME

Differential duty, tax regime being considered relief for MSME will improve its efficiency and productivity for exports

The government is working out a various tax relief measures to boost exports from the micro, small and medium sector enterprises (MSME).

These form part of concessions being considered for the sector for a period of five years. One of the primary relief being considered is differential duty and tax regime for the micro mall and medium enterprises (MSME) sector to improve its efficiency and productivity for exports.

This means the export proceeds or profit of the export will be taxed at a lower rate of 10-15% as against the usual corporate tax rate of 45-50%.

 Officials said, usually such measures are announced in the budget, but the finance ministry proposes to lay these measures for parliamentary approval in the upcoming winter session.

 Alternatively, another measure is for allowing 100% export turnover or profit deduction and deduction of expenditure related to development of export market and sales excluding export sales commission. While the industry has proposed 200% of such deduction, the government may finalise lower bar for such deductions.

Secondly there is a proposal under consideration to hike the amount of credit linked capital subsidy scheme (CLCSS) from Rs 1 crore to Rs 5 crore. CLCSS provides upfront capital subsidy on institutional finance for technology upgradation to small scale industries ( SSI) including tiny khadi,village and coir industrial units.

At present the scheme is applicable for only machinery, but it is proposed to be extended to infrastructure and common effluent treatment plants (CETPs). The interministerial committee to boost MSMEs has recommended treating the subsidy as margin money and increase subsidy per head from 15% to 25% of the actual loan amount.

The industry has suggested that a levy of 0.1% may be levied on the production of all engineering, chemicals and plastic units for sustained financing support. The present subsidy is proposed to be limited till five years,

 Further, the finance ministry is also working out separate duty drawback rate for a list of export products which currently does not attract duty drawback rates. In fact these products may get special drawback rates, officials said.

The ministry is also working out ways to expedite refund and rebates so as to reduce the time limit and making the whole process electronic. It includes Cenvat payment of drawback, refund of excise duties, Value Added Taxes (VAT). Various industry associations have been urged to provide a list of products which has inverted duty structure.

Inverted duty structure is where the custom duty on raw materials is higher than the finished products .

These fiscal concessions form part of the package prepared by the government for the MSME sector to boost exports. These measures include steps to address availability and cost of credit including foreign credit, export marketing support, skill development through labour law changes among other suggestions for the MSME sector that contributes more than 40% in India’s total.

These measures are based on the recommendation of the interministerial committee for boosting exports from the MSME sector.