With the situation changing by the day, much of the economy is coming to a grinding halt and businesses are now facing the brunt of a brutal virus that is ravaging nations across the world.
According to Rajiv Chawla Chairman, IamSMEofIndia from the third quarter of this fiscal, the business sentiment has been very bad and this quarter could be even worse. “The negative sentiment is likely to be extended to the first quarter of the new financial year,” says Chawla.
Chalwa says the biggest demand that MSMEs would have from the government is that since there may be a delay in interest and installment payments to the banks, banks should have the patience and not declare them NPAs. “Banks should give them more time to pay interest and installment without paying charges, treat them as regular accounts and allow them some grace period,” says Chawla.
Pankaj Gulati, COO- Continental Device India Ltd (CDIL), and ex-president Elcina, says such has been the disruption at the moment that most of the EU companies are not even discussing any business deals, and same is the condition of the companies in the US.
“I am surprised that while Governments the world over have so far taken drastic measures to keep businesses afloat, the Indian government has not done that much. This in terms of putting in funds, announcing a package, etc,” says Gulati. Countries, including the US, the UK and China have already unveiled plans that will see the Government rolling out billions of dollars to help businesses.
According to some, the Government can look at some of the international best practices. Some examples include Saudi Arabia unveiling a 50 billion riyal ($13.3bn) stimulus plan for small and medium sized businesses as the oil -rich Gulf States acts to support economies hit hard by Coronavirus. UAE’s decision on 14 March to launch a 100 billion Dirham ($27.2 billion) economic support package to assist corporate and retail banking clients was also aimed at providing relief to institutions affected by the impact of coronavirus.
Gulati says for the FY 2021, as support to the industry, the government should announce an income tax slab of 15%, which is already existing slab for new companies. “We demand that the slab should now be extended to all the companies. This will greatly help the MSMEs too,” says Gulati.
Gulati adds that some of the other things that the government could do is support EPF contributions for two quarters and as practiced elsewhere, there should be a 50% reduction in tariffs of facilities such as water, electricity etc. Then, an interest subvention of 5% on the working capital should also be allowed, because unless the industry gets some support on the borrowings, it’s not going to work out.
“However, if there is a lockdown declared, the Government should cover the salary cost of the workers. A lockdown can greatly hurt the country’s MSMEs that are already facing many issues,” says Gulati.
Chawla says the impact of Covid 19 is already very visible. “For a lot of businesses there is uncertainly around their ability to pay March and April’s salary to their workers. In my view, the market demand has been hit by at least 50%. With no buyers around, a big question mark hangs on the future of the MSMEs already in dire straits,” says Chawla.
One of the biggest help the Government can provide businesses say, is around taxation. We are in completely uncharted waters and the Goods and Services Tax is still a relatively new regime. Given the circumstances, some of the GST issues the MSMEs would face on account of Covid-19 are:
- Impacts on Accounts Receivable – GST invoiced is due and must be paid regardless if you have received payment from customers.
- Treatment of bad debts.
- Cancellations or reduction of orders – Related tax invoicing and credit notes issues and tax accounting reconciliations etc.
- Cancellation of reservations – Hospitality sector, would need to consider the correct GST treatment.
- Change of time of services (with no change in fees etc.) – The time of supply rules for GST needs to be factored to avoid incorrect reporting.
Chawla says that when it comes to statutory payments, GST is one area that businesses would want the Government to be proactive. “ESIC has given 30 days extended grace period to deposit dues of Feb-March, which is now extended to 45 days. Like EPFO, we want the GST department to allow an extra grace period to MSMEs to deposit their dues,” says Chawla. He adds that, due to sudden disruption in working norms, e,g work from home, it has been very difficult to file any kind of returns in time, so the government should also extend the filing of all statutory returns by at least 60 days.
“Relaxations in filing requirements, waiver of penalties, late fees, GST rate reductions, speedy refunds are some of the indirect tax measures which the Government may contemplate to counter the ill effects of this pandemic,” said Harpreet Singh, Partner, KPMG India.
MS Mani, Partner, Deloitte India, however, prefers something more substantial. Mani says that while the Government has already taken various measures to make things easier for MSMEs since the introduction of GST, including hike in composition limit, making return frequency quarterly, lowering rates for many products etc. However, the problems faced by MSME may not be due to GST alone, but also due to liquidity crunch, NBFC issues, demand curtailment etc.
“Possibly, the GST law can have a completely separate chapter covering MSME – as the intention is to broaden the tax base by having them and not necessarily to collect additional taxes from them as their overall contribution to the GST collection kitty is very low,” says Mani.
Given the current context, Mani says depending on the nature of the offence that has led to fines and penalties, a benevolent dispensation can be provided to MSMEs. “While fines/penalties for serious offences including evasion etc, should not be waived, those related to procedural matters like delay in filings/payments etc could be accommodated,” says Mani.
Singh, however, says it could be a tough balancing act for the Government. “At one end they need to enhance revenue collections to provide stimulus to the economy and at the other, the industry is looking at relaxations and waivers on taxes to bolster the sentiments,” says Singh.