The 2017 Budget saw a key initiative for small and medium-sized enterprises (MSMEs). Finance Minister Arun Jaitley announced in the Lok Sabha today that the corporate income tax rate for businesses with turnover less than or equal to Rs. 50 crore will get a 5% reduction in corporate income tax. This means that the corporate income tax rate will now effectively be 25% from the earlier 30%.
This move will help small and medium-sized enterprises considerably and provide more impetus to small business owners to set up and grow their businesses. The table below provides an overview of the savings for companies with different levels of taxable income:
|Taxable Income (A)|
|Tax @ 30% (Earlier) (B)|
|Tax @ 25% (Now) (C)|
|Savings (B minus C)|
|25 lakh||7.5 lakh||6.25 lakh||1.25 lakh|
|50 lakh||15 lakh||12.5 lakh||2.5 lakh|
|1 crore||30 lakh||25 lakh||5 lakh|
|5 crore||1.5 crore||1.25 crore||25 lakh|
|15 crore||4.5 crore||3.75 crore||75 lakh|
|25 crore||7.5 crore||6.25 crore||1.25 crore|
|40 crore||12 crore||10 crore||2 crore|
|50 crore||15 crore||12.5 crore||2.5 crore|
In addition, SMEs with a turnover of up to Rs 2 crores will now have to bear a lower presumptive tax. The tax has been lowered to 6% from 8%. This considerably reduces the financial burden on small business owners. Moreover, there has been an additional boost for start-ups. These enterprises now will have to pay taxes for just three out of seven years if they make profits.
The government has also introduced a few other measures to help small and medium enterprises in an indirect way:
- Automatic FDI Approval on the Cards: Most FDIs will now be automatic as the government has decided to abolish the Foreign Investment Promotion Board (FIPB) that regulated foreign investments. With the government clearly showing its intention to make India more investor-friendly, this can only help small businesses to get the funding they need without having to go through a long-winding approval process.
- Impetus to Industrial Skill Training: The government has decided to push Industrial Skill Training with an infusion of Rs 2,200 crore. This means that small businesses will have more access to skilled labour in the years to come. In addition, enterprises which are engaged in professional skills training will be able to benefit more directly from this measure.
- Boost to Infrastructure:
- Giving affordable housing the status of an industrial sector means there will now be more opportunities for businesses in this sector. Making 1 crore houses by 2019 will require massive work and small enterprises are likely to be the key beneficiaries.
- Moreover, the goal to have 100% electrification of the rural sector by 2019 will also help boost enterprises who take up contract or sub-contract work for state and other electricity boards and related entities.
- Even the businesses that work in the Railways sector will benefit. The plan to redevelop 25 stations, add lifts and escalators to 500 stations, and make 500 stations easy to access for the differently-abled, again means more work for enterprises undertaking railway contracts.
- Businesses that take up road construction and maintenance contracts will also benefit from the Rs. 64,000 crore allocation for highways. Moreover, with 2,000 coastal roads being identified for development, the opportunities will only increase for small businesses.
- Incentives for Small-scale Pharma Companies: The proposed changes to the Drug and Cosmetics Rules to make medicine more affordable means that small businesses that make generics will now benefit directly. The changes will allow them to compete on better terms with the more cash-rich pharma majors.
- Focus on GST: Once implemented, the GST will change the way India’s indirect taxes work. However, the MSME sector has mostly shown a sceptical reaction to the new regime. The government’s plans to reach out to industries on the bill and create more awareness will help the small businesses understand the bill better and allow them to accept it easily.