‘Budget must support MSMEs, cut personal tax rates’

KR Srivats New Delhi | Updated on December 30, 2019

PHD Chamber of Commerce and Industry (PHDCCI) President DK Aggarwal

Govt should put together ₹25,000 crore MSME focused fund, lower MSME tax rate by 5 percentage points, says PHDCCI Chief Aggarwal

Asserting that the Indian economy was “bottoming out” from the current slowdown, the PHD Chamber of Commerce and Industry (PHDCCI) President DK Aggarwal urged the government to focus attention in the upcoming Budget on putting more money in the hands of MSMEs and individuals to drive domestic demand.

Besides a 5 percentage point cut in maximum income tax rate of MSMEs, the government should also in the Budget put together a ₹25,000-crore fund focused on MSMEs on the lines of the one set up recently for last mile funding in housing sector. The government should also go in for a sharp cut in personal income tax rates to put more money in the hands of the individuals, he said.

“We are bottoming out and worst seems to be over. Some green shoots are expected to be visible in January-March quarter. There will also be an uptick in demand once the government measures are implemented in full spirit. We expect some improvement in investment cycle in the second quarter. The Budget is crucial and it should have measures to support MSMEs and individuals through income tax rate cuts,” Aggarwal told BusinessLine in an interview.

Aggarwal highlighted that India had about 11 crore MSMEs, which are the backbone of the economy. Nearly 99 per cent of these MSMEs are not going to benefit from the recent corporate tax rate cut announced by Finance Minister Nirmala Sitharaman on September 20. Most MSMEs in India are still structured as proprietors, partnerships or limited liability partnerships, he said.

“It is important to put more money with MSMEs and individuals, as that is where demand will get generated. Not doing anything may result in stagflation. Even at the cost of fiscal slippage, the government should go for tax cut. In the long term, tax collections will only go up,” he said.

Aggarwal felt that MSMEs should not be penalised with higher maximum tax rate just because they are not subjected to dividend distribution tax, which is levied on corporates paying dividends.

The Budget should also look at providing tax breaks for individuals who are parking their monies in instruments issued by MSMEs, Aggarwal said.

He also felt that the government’s rural spend should be increased to boost rural incomes.

High real interest rates

Aggarwal underscored the need for better transmission of policy rates cut by the RBI, stating that real interest rates in the Indian economy are still very high, which is a matter of serious concern. “Transmission should happen. It is not happening now. Two-thirds of the 135 basis points policy rate cut effected already is yet to happen,” he said.

On personal income tax, Aggarwal felt that time has come to raise the tax exemption limit to ₹5 lakh for all taxpayers. The income tax rate should be 10 per cent upto taxable income of ₹10 lakh; 20 per cent from ₹10 lakh to ₹20 lakh and 30 per cent beyond ₹30 lakh.

India will have to seriously think of promoting exports if its aspirations of becoming a manufacturing hub and a $5-trillion economy by 2025 are to be realised. On currency management, Aggarwal said that the rupee should not be allowed to be appreciated to a level where the country’s competitiveness is getting affected.

Contract enforceability

While noting that the Centre had taken several measures to boost economic growth, it was also important that these measures are implemented in full at all levels.

“We need to improve on contract enforceability,” he said.

There has to be policy continuity, consistency of policy and predictability of policy regime besides a consultative process with industry before going in for policy changes.

“You should not take industry by surprise. We should look to do in other areas what SEBI is doing nowadays — issue discussion papers, consult with stakeholders before firming up any policy or regulations,” he said.

Aggarwal cited the case of the new Andhra Pradesh government cancelling power purchase agreements, start-up centre including dam projects and taking those who had previously won the contracts by surprise.

Aggarwal also suggested that NITI Aayog should look into the possibility of ranking districts, as this could help propelease of doing business.

Published on December 30, 2019

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