MSMEs to be decided based on turnover; Bill introduced in LS

A bill specifying the turnover of a business entity which would classify it as a micro, small or medium enterprise, was introduced by the government in the Lok Sabha today.

The Micro, Small and Medium Enterprises Development (Amendment) Bill provides for change in the criterion of classification of MSMEs from the existing based on 'investment in plant and machinery or equipment' to 'annual turnover' of the enterprise.

The bill was introduced in the Lok Sabha by Minister of State for MSMEs Giriraj Singh, after he withdrew the 2015 Bill on the issue.

As per the amendments, any business with a turnover of up to Rs 5 crore would be considered as a 'micro enterprise'. A 'small enterprise' would be the one whose annual turnover is more than Rs 5 crore to Rs 75 crore.

Those businesses with turnover over Rs 75 crore but upto Rs 250 crore would be deemed as a 'medium enterprise'.

The 2006 MSME Act was enacted to facilitate the promotion and development and enhancing competitiveness of MSMEs.

The statement of objects and reasons of the bill said it has been observed during stakeholders' consultation that the criterion of investment in plant and machinery or equipment entails physical verification having associated transaction costs.

It incentivises the tendency in the promoters of the enterprises to keep the investment size small in a particular business entity in order to retain the benefits associated with MSME category, it added.

"While evaluating various alternatives, it has been considered appropriate that if the annual turnover is taken as a criterion for classification, the information available with the Goods and Services Tax Network and other sources can be used for determination of category of the enterprises.

"Overall, the turnover-based classification will promote the ease of doing business and will put in place a non discretionary transparent and objective classification system," the bill says.