Micro, small and medium enterprises (MSMEs) will soon be defined based on their annual turnover if a new Bill introduced in the Lok Sabha on Monday becomes law. At present, it is decided based on the investment made in plant and machinery/equipment.
Under the MSME Development (Amendment) Bill, 2018, introduced by MSME Minister Giriraj Singh, any business with a turnover of up to Rs. 5 crore will be considered a ‘micro enterprise’. The other slabs are Rs. 5-75 crore for ‘small enterprise’ and Rs. 75-250 crore for ‘medium enterprise.’
At present, there are two sets of definitions, depending on whether the units produce goods or offer services. Under the goods category, the slabs are up to Rs. 25 lakh for micro, Rs. 25 lakh to Rs. 5 crore for small and Rs. 5-10 crore for medium. In the case of services, the slabs are: up to Rs. 10 lakh , Rs. 10 lakh to Rs. 2 crore and Rs. 2-5 crore, respectively.
The change in the criteria for the classification was felt necessary “in order to align it with the needs of current times and changing business ecosystem,” said the Bill’s statement of objects and reasons.
The statement also said the criterion of investment entails physical verification, which entails transaction costs. It also incentivises promoters to keep the investment size small to retain the MSME tag.
On the other hand, if the annual turnover is the criterion, the information available with the GSTN Network and other sources can be used.
The existing criterion of investment calls for physical verification, which entails transaction costs.
It also incentivises promoters to keep the investment size small to retain the MSME tag.