Cash-starved micro small and medium enterprises (MSMEs) have sought a one- time “disclosure” scheme, which will allow them to declare their actual annual turnovers, with the promise that they will not be harassed for audit records of previous years.
MSMEs sometimes under report their turnovers to avail the tax benefits given by the Centre.
The Federation of Indian Micro and Small and Medium Enterprises (FISME) has written a letter to Prime Minister Narendra Modi on the issue, seeking a “scheme”, under which enterprises will pledge disclosure and compliance, but with the assurance that they will not be harassed thereafter and their previous records will not be opened.
The government has said that the expansion of digital payment will promote transparency and significantly bring down the scope of mis-reporting.
“We want a scheme for these small businesses to come clean with their audit data from the current year onwards, but they should not be harassed for their business transactions and turnovers in the previous years... If some sort of a scheme is not brought out, then either these businesses will have to shut down or continue their malpractices,” an industry insider told HT on the condition of anonymity.
Most MSMEs are exempted from maintaining detailed audit records. In the Union Budget 2016, the government raised tax exemptions for small business units with a turnover of up to R2 crore from the earlier R1 crore.
“While most of the entrepreneurs can be counselled/persuaded to migrate to the formal economy, the biggest hurdle in the way is the fear of persecution, both in future and for non-compliance in past. A comprehensive ‘amnesty’ – a kind of safe passage, is needed..” the letter, written by FISME president Sangam Kurade, said.
While the government has announced income disclosure schemes for individuals to come clean and declare their undeclared wealth, there is no comprehensive scheme for small companies.
MSMEs, largely unorganised, have been typically dealing in cash, and the sudden withdrawal of R500 and R1,000 notes on November 8 has impacted their businesses significantly.
The MSME sector has already been hit by a slowdown in exports, lower and costlier credit from banks. The recent demonetisation drive announced has dealt an added blow to the sector. According to sources, several of these small units have no cash in hand and could resort to large-scale retrenchment.
The MSME sector accounts for 20% of the country’s GDP, and is the largest employment provider in the country.
While the Reserve bank of India has allowed small businesses to withdraw up to R50,000 in cash every week from their overdraft and cash-credit accounts besides current accounts, sources said that the amount was “grossly insufficient.” The central bank has also given an additional 60-day window for repayment of loans, which applies to dues payable between November 1, 2016 and December 31, 2016.