Tax structure transformation boosts SMEs

Although the Union Budget 2010-11 may not have conceded all the demands of the various small-scale industry associations in India, a few budgetary proposals have provided enough reason for celebration to the SME sector in India. The SME sector as well as the country's economy is expected to gain from budgetary initiatives such as change in Central Value-Added Tax (Cenvat) as well as quarterly payment of excise duty.

Budget: A welcome relief

Industry associations such as Federation of Indian Chambers of Commerce and Industry (FICCI), Chamber of Small Industry Associations (COSIA) and Coimbatore District Small Industries Association (CODISSIA), among others have welcomed tax policies in this growth-oriented Budget.

"The Union finance minister, Pranab Mukherjee, has done a good job of walking the tightrope by maintaining a growth outlook, while also undertaking measures to manage the widening fiscal deficit. Quarterly payment of excise duty will help small firms and enable the Indian economy to move forward on the back of a stable tax regime," said Nand Kumar Laddha, an independent chartered accountant working in Kolkata.

Although the hike in Cenvat rate has come in the face of pressure for stimulus rollback, industry representatives and analysts believe that such a measure would help to spur the domestic economy by generating more revenues.

"A hike in the Cenvat rate from 8% to 10% is unlikely to dampen the spirit of the SME sector as a marginal 2% hike in rate can be absorbed by small players," said A Somani, senior analyst at Balaji Securities, an equity broking firm in New Delhi.

Overall, by laying down a roadmap for fiscal correction and introducing several tax proposals, Mr Mukherjee has undertaken adequate measures to prop up SMEs, thereby eventually accelerating the recovery process of the Indian economy.

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David Parks is a well known author and has written articles on Agriculture Manufacturers and Eyewear Manufacturers, suppliers, Manufactures and many other subjects.