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MOF to incentives GST-compliant MSMEs

The Ministry of Finance (MOF) is mulling the prospect of providing more incentives for The Micro, Small and Medium Enterprises (MSMEs) that comply with the requirements of GST regime, including access to loans at discounted rates, in an attempt to reward early adopters and encourage others to ensure compliance. MSMEs have been at the forefront of the protests against GST. Many of these enterprises operated in the informal economy and several sneaked away by paying a minor part of the taxes that they should actually have paid however the new tax regime has hit them hard. MSMEs that supplied to large companies were told to comply with the new GST regime. If they didn’t, the larger companies couldn’t claim input tax credit. The proposed incentives are meant to complement the drive to integrate the cash-driven unorganised sector with the formal sector. This has been a major policy focus of the new government.

Difficulty in accessing credit is a big hurdle MSMEs face in doing business, especially as many of them do not have immovable assets to offer as collateral, however, the GST Council, the federal indirect tax body led by finance minister Arun Jaitley has been rationalising tax rates and compliance requirements for MSMEs considering the employment potential of the sector. Only about 5 per cent of the MSME sector, which accounts for a total sale of Rs 40 trillion a year, has access to formal finance from banks, said Praveen Khandelwal, secretary general of the Confederation of All India Traders (CAIT).

The initial revenue shock following the roll out of GST has eased in October with states steadily improving collections aided by relaxations in deadline, waiver of late payment fee and steps to encourage compliance.