Budget 2018: Achhe Din are here for MSME sectors

The big daddies of India Inc, many with bloated balance sheets, might have to wait till next year for any government largesse.

Budget for FY19 is for the small businesses, some of which are lovingly called start-ups, who would now benefit mostly from reduction of corporate tax rate from 30% to 25% for those with annual turnover of up to Rs 250 crore.

In the previous Budget, the Finance Minister reduced corporate tax rate to 25% for companies whose turnover was less than Rs 50 crore.

This benefitted 96% of the total firms filing tax returns.

"Towards fulfillment of my promise to reduce corporate tax rate in a phased manner, I now propose to extend the benefit of this reduced rate of 25% also to companies who have reported turnover up to Rs 250 crore. This will benefit the entire class of micro, small and medium enterprises which accounts for almost 99% of companies filing their tax returns. The estimate of revenue forgone due to this measure is Rs 7,000 crore," Jaitley said.

The rest 1% aren't happy though. "Headline tax rates are falling all across the world, with now even the US joining and leading the race," said Milind Kothari, Managing Partner, BDO India.

India Inc has been demanding cut in corporate tax rates with industry bodies like Assocham and Ficci seeking reduction to 25% with CII even demanding a deeper cut to 18% with CII president Shobhana Kamineni arguing that rates in India are one of the highest.

However, of the near 7 lakh companies filing returns, just 7,000 companies, which file returns of income and whose turnover is above Rs 250 crore, will remain in the 30% slab.

Clearly, the Finance Minister is in no mood to reward large corporate with such low tax compliance.

A small cut in tax for smaller business would have much larger impact on the economy in terms of capital and job creations. "The lower corporate income tax rate for 99% of the companies will leave them with higher investible surplus, which in turn will create more jobs," the FM said.

"Reduction in corporate income tax for more number of MSMEs should be contingent on the fact that the net gains in profits should be reinvested in a manner that would promote jobs and some kind of share in that should be reflected in wage shares of employees. These clearly will show that employment is the core concern of the government," says Prof. KR Shyam Sundar, XLRI - Xavier School of Management.

The tax cut would strengthen the manufacturing sector, believes Rahul Garg, Senior Partner with PwC India, while it would also increase their access to finance, and address issue of non-performing assets, helping the MSME alleviate the stress, says Kamineni.