Union Budget 2021-22 Expectations for MSMEs: The MSME Development Act, 2006, which contains provisions related to the issue of delayed payment to small businesses, and the Micro and Small Enterprise Facilitation Councils (MSEFC) that have been set-up for settlement of disputes have no teeth to resolve the delayed payment issue, according to Manguirish Pai Raikar, Chairman at Assocham’s National Council for MSME. “There is the Act for delayed payments, you can go to facilitation councils as well, but they don’t have teeth. There has to be a strong deterrent against businesses delaying payments to MSMEs. In 80 per cent of the cases, they delay it deliberately while MSMEs have to continue pay interest on the bank loan. Eventually, MSMEs get defaulted for no fault. There should be some punishment for delayed payment,” Raikar told Financial Express Online sharing the industry body’s expectations from the budget for MSMEs.
While the Department of Expenditure had issued an Office Memorandum in July last year asking buyers to pay a penal interest of 1 per cent per month for delayed payments beyond the prescribed duration of 45 days from the day of acceptance of goods, “businesses are not interested in paying on time. This is the major problem to be looked at,” he said. According to the delayed payment monitoring system MSME Samadhaan, out of 65,435 applications filed by MSEs, only 5,691 applications involving Rs 858.60 crore were disposed of by MSEFCs so far. According to the Act, state governments have to ensure that the MSEFC hold meetings regularly and decide on the delayed payment cases within a period of 90 days from the date they are brought under the consideration of the respective MSEFC.
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Assocham has also sought collection of GST payments from MSMEs on a cash basis instead of accrual or bill basis to help businesses fast track their post-Covid recovery. Businesses are currently liable to pay GST on point of taxation that precedes the payment received for goods sold. This leads to working capital crises for MSMEs eventually leading to slower business growth, job cuts, and more. “What happens if I don’t get payments for two months, but the moment I do the billing then by 31st of the particular month I have to pay GST,” said Raikar. The association has also urged the government to exempt MSMEs from the reverse charge mechanism of GST, allow Input Tax Credit under GST on the construction of the immovable property, and reduce stamp duty due to economic slowdown. Recently, the Tamil Nadu government had announced stamp duty exemption and reduced registration charges for MSMEs for agreements related to Deposit of Title Deeds for securing loans till March 31, 2021.