Finance Ministry may offer incentives to MSMEs that adopt GST

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For those who adopt GST early, the Finance Ministry is mulling the idea of offering more incentives such as loans at discounted rates to encourage others to get on-board.

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The Finance Ministry is mulling the idea of offering MSME loans at discounted rates to early adopters of GST to encourage others to get on-board.

Micro, small and medium enterprises (MSMEs) that comply with the new GST regime (Goods and Services Tax) may be entitled to avail incentives offered by the Finance Ministry as a reward for being early adopters. The idea is to encourage those who have not complied yet to implement GST in their operations.

Since the introduction of GST, MSMEs have been prominent protestors as the new regime hits them hard. Many of these businesses operate in the informal economy, and for many years, these enterprises have been paying only a fraction of the tax they are liable to actually pay. Larger companies that used such MSMEs as suppliers will no longer be able to claim input tax credit if the MSME didn’t comply with the GST regime. There is strong pressure from large companies to make MSMEs incorporate GST into their operations.

One of the major focuses of the Modi Government is to drive the cash-based unorganised sector into the formal sector. Such incentives would help speed up the process of integration. Many MSMEs do not have immovable assets to offer banks as security against the loan. Therefore, MSMEs face many obstacles in getting credit to meet day-to-day expenses, investments and capital requirements. Making loan approvals easier and offering discounted interest rates might prove to be very luring.

The government has also started creating a registry that will contain information about the movable assets of MSMEs. Banks would then have access to such information to find out whether these assets have already been pledged with other lenders. They can then take a decision on whether to sanction the loan or not.

Praveen Khandelwal, Secretary General of Industry Body Confederation of All India Traders (CAIT), said that only around 5% of the MSME sector, accounting for Rs.40 trillion sales per year in total, has access to formal finance from banks and other lenders. The other 95% of the sector depends on private moneylenders.

The GST Council led my Mr. Arun Jaitley, Finance Minister of India, has been rationalizing tax rates and compliance requirements for the MSMEs taking into consideration the potential of employment in the sector.

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