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SMEs Shifting Business Growth Online Have Big Hopes From Budget FY18

SMEs Shifting Business Growth Online Have Big Hopes From Budget FY18
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Unprecedented is the buzz word for Union Budget 2017. Breaking away from the colonial-era tradition the budget date has been advanced to 1stFebruary 2017 and the Railway budget’s solo presentation has been done away with as it is unified with the Union Budget. Going by the disruptive policy reforms that the Government has been introducing steadily, the latest being the demonetization initiative, the MSMEs look ahead with hope; even as they expectto see major shifts and changes and a few watershed moments disbursed in between. 

2016 was a decisive year for the Indian MSME sector, thanks to factors such as the introduction of GST bill and the much-talked-about demonetization drive, among others. The economic resiliency of India can be gauged from the fact that the country has withstood all sorts of storms, including the huge global financial meltdown that had widespread implications across the world. Much of its credit goes to the country’s ever shining SME sector, which has managed to clock substantial growth rate fighting against all odds. Now, with a flourishing startup ecosystem and hundreds of entrepreneurial ventures coming up, the sector is all poised to grow further.

As per a report by The Confederation of Indian Industry (CII), MSMEs contribution to the country’s GDP is 7 percent in terms of manufacturing, 31 percent from services and 37 per cent of India’s overall manufacturing output. With over 51.1 million units across the country, such businesses have been able to generate jobs for more than 120 million people and contribute over 46 percent of overall exports from India to various countries.

Union Budget 2016 gave the MSMEs a new lease of life with tax concessions wherein Small Businesses and startups with a turnover less than Rs.5 crores (as on fiscal March 2015) now pay a reduced tax of 29%, excluding applicable surcharges and cess during 2016-17 fiscal. Also, new ventures and startups that commenced operation between April 2016 to March 2019 were gifted the 100% tax exemption for 3 years on any profits during the first 5 years of operations that gave an adrenalin rush to the new age entrepreneurs.However, the catch of the Minimum Alternate Tax or MAT of as high as 20% on such profits reigned in the freebies.

SMEs are realizing the fact that the internet is a fertile ground and shifting their businesses online makes much sense on the back of the demonetization drive and digitization intiatives by the Indian Government. The upcoming budget and the reforms that the Government introduces is expected to play a crucial role in the growth of the SME sector.

The Government had already expressed its intention to lower the corporate tax to 25%in the last fiscal. MSMEs are hopeful that a further drop ofup to 18% will be introduced in this budget, including all surcharges and cess, with withdrawal of all tax incentives, concessions etc. Not only would this increase the tax revenue, but would also lead to employment generationand make India an attractive international investment destination.

The demonetization drive hadgiven an impetus to digital payments, cashless economy and cashless transactions. It is expected that more such reforms will be introduced in FY 2017 which will prove to be a manna for online businesses.

GST or the Goods and Services Tax is awaited with bated breathethough there exist different schools of thoughts debating its impact on B2B E-commerce segmentweighing the positives against the negatives.While it is true that the GST bill will create a centralized taxation system by plummeting the multiplicity of indirect taxes, it can, however, bring in a host of challenges for E-commerce SMEs, which run their businesses on a reduced scale. In case the present GST bill is implemented, SMEs will have to collect tax at source, which can take a toll on their overall working capital requirement. The timely implementation of GST coupled with the addressing of issues pertaining to Tax Collection at Source, treatment of refunds and cancellations etc. would play a significant role in catapulting the growth of SMEs.

Industry insiders are hopeful that an updated edition of GST will be introduced in this budget that would provide more benefits for small businesses, especially those that operate on a smaller scale.

 

 
Edition: June 2017

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