Ahead of the full budget for the financial year 2024-25, the Federation of Indian Chambers of Commerce and Industry (FICCI) held a pre-budget consultation meeting with Finance Minister Nirmala Sitharaman. During the meeting, FICCI called for revising the qualifying turnover criterion for mandatory registration of companies on the invoice discounting platform TReDS. The industry body proposed lowering the threshold from Rs 500 crore to over Rs 250 crore.
Revising Turnover Criteria for TReDS Registration
Subhrakant Panda, Immediate Past President of FICCI, emphasized the need to revise the turnover criterion to include more companies under the TReDS platform. According to the MSME Ministry’s dashboard data as of May 2, 2024, the Corporate Affairs Ministry identified 5,871 companies with turnovers exceeding Rs 500 crore as of January 31, 2023. However, only 1,932 of these companies have registered on the TReDS portal so far.
The government had previously mandated that all central public sector enterprises (CPSEs) register on TReDS. As of May 2, 196 CPSEs have complied. By lowering the turnover threshold, FICCI aims to increase participation and improve liquidity for MSMEs.
Leveraging Account Aggregator Framework for MSME Lending
Panda suggested that every tax invoice raised by a GST-registered MSME unit should automatically reflect on the respective TReDS platform where the MSME unit is registered. This would ensure that such invoices are deemed accepted and made available for financial institutions to provide funds to MSMEs.
He also called for leveraging the account aggregator (AA) framework for MSME lending by reviewing legal and compliance issues that prevent joint and corporate accounts from falling under the AA scope. The AA framework, if fully utilized, could streamline the lending process and enhance credit access for MSMEs.
Simplifying TDS Provisions and Capital Gains Tax Regime
Among other key requests, FICCI urged the Finance Minister to simplify the Tax Deducted at Source (TDS) provisions. Panda suggested laying down a roadmap for rationalizing the TDS rate structure to only three categories: TDS on salary at slab rate, TDS on lotteries/online games at the maximum marginal rate, and two standard rates for TDS for different categories. This simplification would reduce the compliance burden on businesses and improve the tax system’s efficiency.
FICCI also called for easing the capital gains tax regime. They proposed creating two or three broad categories for different types of assets, defining the holding period for assets to be considered long-term, determining indexation benefit eligibility, and standardizing the Long-Term Capital Gains (LTCG) tax rate and Short-Term Capital Gains (STCG) tax rate for such assets without distinguishing between residents and non-residents. This reform would make the capital gains tax system more straightforward and equitable.
GST 2.0 Reforms and Inclusion of More Sectors
FICCI advocated for GST 2.0 reforms, which would involve fewer GST tax slabs and the inclusion of currently excluded sectors. They also suggested revamping the GST law to minimize friction in achieving the pass-through of all input tax credits throughout the value chain. Simplifying GST would enhance compliance and streamline tax administration, benefiting businesses across various sectors.
Enhancing Support for MSMEs
The proposed changes are aimed at boosting the MSME sector, which plays a crucial role in the Indian economy. By lowering the turnover threshold for TReDS registration, more companies would be able to access the benefits of invoice discounting, improving cash flow and financial stability.
Leveraging the account aggregator framework would further enhance MSME lending by providing a comprehensive view of an entity’s financial health. This would facilitate better credit assessment and quicker loan disbursements.
Simplifying TDS provisions and easing the capital gains tax regime would reduce the administrative burden on businesses, making it easier for them to comply with tax regulations. GST 2.0 reforms would create a more efficient and inclusive tax system, promoting growth and development across various sectors.
Conclusion
The pre-budget consultation meeting between FICCI and Finance Minister Nirmala Sitharaman highlighted several key areas for reform that could significantly impact the MSME sector. By revising the turnover criteria for TReDS registration, leveraging the account aggregator framework, simplifying TDS provisions, and implementing GST 2.0 reforms, the government can create a more supportive environment for MSMEs. These changes would enhance financial access, reduce compliance burdens, and promote sustainable growth, ultimately contributing to the overall economic development of the country.
As the government prepares to announce the full budget for the financial year 2024-25, it is crucial to consider these recommendations from FICCI to ensure that the MSME sector receives the support it needs to thrive. By addressing these critical issues, the government can help create a more robust and resilient economy, benefiting businesses and citizens alike.