MSMEs and startups have several proposals to cheer about in Budget 2020, reports Team B&C
The Finance Minister, Nirmala Sitharaman in her second Budget speech said that, a scheme to provide subordinate debt to MSME entrepreneurs will soon be introduced. The government has also asked the Reserve Bank to extend the debt restructuring window for micro, small and medium enterprises by a year to March 31, 2021, in measures aimed at imparting a thrust to the MSME sector.
“An app-based invoice financing loans product will be launched. This will obviate the problem of delayed payments and consequential cash flow mismatches for MSMEs,” said the Finance Minister. She said necessary amendments will be made to the Factor Regulation Act 2011 to enable non banking financial companies (NBFCs) to extend invoice financing to the MSMEs through TReDS thereby enhancing the economic and financial sustainability.
‘Working capital credit remains a major issue for MSMEs. It is proposed to introduce a scheme to provide subordinate debt for entrepreneurs of MSMEs. This subordinate debt to be provided by banks would count as quasi equity and would be fully guaranteed through the Credit Guarantee Trust for the medium and small entrepreneurs,” was one of the proposals by Sitharaman.
TReDS is an institutional mechanism to facilitate the trade receivable financing of micro, small and medium enterprises (MSMEs) from corporate buyers through multiple financiers.
Highlighting that more than five lakh MSMEs have permitted from restructuring of debt permitted by RBI in the last year, she said the restructuring window was to end on March 31, 2020 but the government has asked RBI to consider extending this window till March 31, 2021.
Another measure aimed at facilitating growth of micro, small and medium enterprises includes raising the turnover threshold for audit of accounts to Rs five crore.
Currently, only businesses having a turnover of more than Rs one crore are required to get their books of accounts audited by an accountant. In order to reduce compliance burden on small retailers, traders, shopkeepers who comprise the MSME sector, I propose to raise by five times the turnover threshold for audit from the existing Rs one crore to Rs five crore,” the Finance Minister said.
The incentives for startups includes, a dedicated early-stage fund, relaxation of taxes levied on employee stock ownership plans (ESOPs) and fresh tax rebates on startup firms based on their turnover. The government also announced centralised investment clearance cell, setting up of data center parks, and a digital platform for filing intellectual property rights (IPR).
To resolve the issue of dual taxation on ESOP shares held by employees, the proposal is to defer the tax payment by five years, or until employees leave the company, or when they sell their shares—whichever is earlier. “ESOPs serve as an important compensation tool for employees and for startups as they help reduce attrition rates and retain top talent,” said the Finance Minister.
“I congratulate the Finance Minister for adopting a holistic approach encompassing, Aspirational India, Economic Development and Caring Society. The thrust on agriculture and allied sectors, infrastructure, MSMEs, entrepreneurship, clean Energy, digitization and education will bode well for the Indian economy. The abolition of dividend distribution tax, one of the long-standing demand of CII is welcome. Rationalisation of personal income tax is a good move although its benefits need to be seen in view of foregone exemptions. While the stimulus provided to affordable housing is commendable, more could be done to boost the sector.” Sanjiv Bajaj, chairman, CII Western Region