Union Budget 2022: Three things MSMEs expect from FM Sitharaman

The forthcoming Union Budget will be important from the perspective of cementing the growth turnaround after the induced stress of the COVID-19 pandemic. 

Despite many policies directed towards MSMEs, they still suffer from significant pains that have been inflicted on them on account of stoppage of business activities due to COVID-19. 

The current government has always encouraged the development of MSMEs and promoted the idea of ease of doing business and simplification of taxation structure. 

Against this backdrop, the industry expects the Finance Minister to focus on a cut in compliance burden, GST rate rationalisation and provide liquidity by unblocking Input Tax Credit ('ITC'). 

Also Read: Budget expectations: Insurance sector seeks additional deductions and lower GST

Simplification of GST system

While the government is working to boost GST revenues, steps to file returns also needs to be made easier. An option for modification of the information in Form GSTR-3B in the period to which the transaction relates shall be beneficial. 

Large organisations having multiple businesses/companies work under a single ERP system. These companies are facing difficulties in maintaining two systems of invoicing based on turnover criteria. 

Hence, extending the option to issue E-invoice on voluntary basis for entities having a turnover less than Rs 50 crore shall certainly provide ease of doing business to organisations having various companies and using a common ERP system. 

Further, issuance of system generated notices for differences in ITC availed, only in cases of abnormal differences and not for minor differences shall be effective in reducing additional difficulties. 
 
Rationalisation of GST rates
 
GST slabs trigger classification issues. Given the overall economic situation of the country and financial capabilities of the taxpayers, it is crucial to have only three rates of GST namely, standard rate for maximum goods and services, lower rate for consumption by common man and higher rate for demerit goods and luxury. 

GST rate for manufacturing should be brought down to 12% from 18% to promote the Make in India initiative. 

Also, COVID-19 has brought to light the importance of precaution, and this is indeed an ideal time in which health and life insurance policies can be made affordable for the common people by reducing the GST rate on health and life insurance premiums from 18% to 5%. 

Also Read: Here's what a dozen analysts expect from Union Budget 2022
 
Provide liquidity

One of the important aspects under GST is ITC and providing a mechanism for free flow of ITC shall automatically increase the liquidity. 

The large taxpayers are facing issues of blocked ITC on account of small taxpayers who file their returns on a quarterly basis. Hence, making the exercise of reconciling ITC between books of accounts and the invoices uploaded by the suppliers on quarterly basis instead of monthly basis shall be favourable for large taxpayers. 

Granting ITC in cases where the goods and services are consumed in a state distinct from the registered State (e.g. hotel accommodation service) shall reduce the cost burden for businesses. 

Capital intensive businesses having a long gestation period comprising advance payments are facing operational difficulties on account of the condition of availing ITC only on receipt of services and not on payment of advance. 

Hence, the said issue can be resolved by doing away with the condition for receipt of services to avail ITC. 

While recovery continues from two COVID shocks, working capital for most businesses is under pressure. Accordingly, an importer should be permitted to discharge his liability under Reverse Charge Mechanism ('RCM') through ITC instead of mandatory cash payment. 

As stated above, the COVID-19 pandemic is also a wake-up call for the focus on health and fitness. ITC on group medical and life insurance policies taken by employers for their employees should not be restricted. 

Overall, the expectations from the budget can be many. However, the key is to identify some emerging issues that need to be tackled by taking suitable measures, addressing the issues of the small players and providing ease of doing business without compromising on the necessity to maintain transparency and comply with the tax laws of the country. 

(Rajeshree Sabnavis is Founder and Isha Jain is Manager, Rajeshree Sabnavis & Associates.)