Union Budget 2019 India: Ahead of the budget to be tabled in the Parliament on July 5, Indian startups and MSME community has highlighted areas of challenges for them particularly those impacting their cash flows. LocalCircles, community engagement platform in a pre-budget meeting with finance minister Nirmala Sitharaman and other senior officials from the finance ministry on Tuesday suggested measures to be taken to help startups and small businesses tide over their cash flow issues. The industry representatives including FICCI, CII, IVCA etc., were also part of the meeting.
Among the key recommendations made was the inclusion of government departments (central and state) and public sector units to pay MSME dues within 45 days of invoice generation. “If corporates are required to paying MSMEs and Startups in 45 days then the government should also pay them in 45 days is one of the asks we have put forth to the Finance Minister,” LocalCircles chairman Sachin Taparia told Financial Express Online. The government had last year issued notification asking companies in their half-yearly filing to disclose the payments due to MSMEs for more than 45 days.
Lack of TDS refunds was another area of discussion as for some startups and MSMEs haven’t got their refunds processed for TDS returns filed in September last year. The ask was to process refunds within 45 days. “For small companies in areas such as housekeeping, security guard services or any professional services, the TDS deduction and delayed refunds create a cash flow problem as they have to pay for let’s say employee salaries from their own pocket. If they pay a lesser salary amount then it leads to lower consumer spending,” said Taparia.
The recommendations were made out of a survey conducted by LocalCircles of more than 16,000 startup and small business’s promoters. Taparia also sent a letter to the minister on Wednesday compiling the recommendations made in the meeting.
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GST under Reverse Charge Mechanism
LocalCircles also stressed on the issue of payment of GST under the Reverse Charge Mechanism by startups for services from overseas suppliers like Amazon Web Services, Microsoft Cloud etc. “Startups have to pay 18 per cent GST under this but if startups are registered outside India then they don’t have to pay it. So startups have an incentive to relocate their registered office outside India and save 18 per cent. We have requested that for early-stage startups at least, GST under reverse charge should be exempted for foreign vendor payments,” said Taparia. An exemption from GST under the mechanism for payment of such services from foreign companies or at least exemption for startups with less than Rs 10 crore turnover was suggested.
Equalisation Levy of 6 per cent paid by startups and SMEs as the additional cost levied on behalf of companies like Facebook, Twitter, Linkedin for using their platforms for ads and promotions was another area of discussion. “This is not just an added cost but also there is a compliance burden on startups and SMEs. Moreover, for foreign companies with a direct presence in India, the invoicing should happen from their India office. This is a major revenue opportunity for India,” added Taparia.
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GST after Invoice Generation
Startups and small businesses also highlighted in the survey that they have pay GST by 20th of the month following invoice generation even as their customers fail to make payments to SME and startups even beyond 90 days from invoicing that puts pressure of their cash flows. Hence the government was suggested that GST should be payable when startups receive payments and not after generating the invoice.
Further, the lack of timely processing of input tax credit refunds to startups was also highlighted. Startups’ costs are usually higher than revenues, which leads to a higher input tax credit, that impacts their cash flows. Hence, it was requested to process the refunds without further delay.