Budget 2018: The reduction in corporate tax for medium, small and micro enterprises (MSMEs) with a turnover of up to Rs 250 crore is likely to galvanise the government’s Make in India initiative. This is so because apart from reducing the tax burden on them, the Budget 2018 has hiked customs duties on a host of items like mobile and electronics accessories, furniture items, and toys, etc, which are manufactured by such firms. This combination of a reduction in corporate tax, as well as protection from imported goods, would enable them to step-up manufacturing and increase their market share. They could also diversify into newer areas. “The attention to MSMEs through better access to finance or lowering of the corporate tax rate would help spur employment and growth in this vital segment of the economy,” said Rashesh Shah, president, Ficci. Similar sentiments were echoed by Sunil Misra, director general, Indian Electrical and Electronics Manufacturers Association.
“The reduction of corporate tax to 25% for SMEs (turnover of up to Rs 250 crore) is a great move towards enabling them to play a larger role in Make in India,” said Amar Shankar, partner, advisory, EY India. Broadly, MSMEs are business enterprises, both in manufacturing and service sectors, with equipment investment of between Rs 10 lakh and Rs 10 crore. According to government estimates, there were 6.3 crore unincorporated non-agriculture MSMEs in the country, providing employment to 11.1 crore workers in FY16. The major initiatives implemented for growth of the MSME sector include the Prime Minister’s Employment Generation Programme (PMEGP), the credit guarantee scheme, the credit linked capital subsidy scheme and the Micro Units Development and Refinance Agency (MUDRA).
However, a section of the industry held that not extending the tax reduction to larger corporates might have negative effects. Commenting on the decision, Abhishek Goenka, partner, PwC, said he was “disappointed with no across-the-board reduction, as this kind of patchwork is unhelpful.” Vipul Jhaveri, partner, Deloitte India, pointed out that large corporates would now have to bear a slightly higher tax burden on account of the 1% increase in cess. “Rationalisation of long term capital gain tax may be inopportune in terms of timing, impact as it can their capacity to raise funds through IPOs and FPOs due to change in market sentiments,” he added.