More tax exemption or lower taxation can put more money in hands of MSMEs: EEPC India Chairman

The engineering exports promotion organization EEPC India has recommended that the government put money in the hands of firms, particularly MSMEs, by way of tax exemption and lower rates in the forthcoming Budget.

The help provided under the Emergency Credit Line Guarantee Scheme (ECLGS) in the aftermath of the Covid epidemic, according to EEPC India Chairman Arun Kumar Garodia in a statement on Thursday, was effectively loaned and as such a liability that has to be returned.

“In such a situation, more tax exemption or lower taxation can put more money into the hands of the MSMEs to service their liabilities and for technical upgradation,” said Garodia.

He pointed out that, notwithstanding a slowdown in global economic activity, engineering exports had experienced an annual decline for six consecutive months up to December 2022.

“Engineering exports slumped nearly 12% year-on-year to US $9.08 billion in December 2022 as compared to US $10.30 billion in the same month a year ago. Given that the world economy is projected to slow down in 2023, global trade would be hit badly. Many global agencies have predicted a very bleak scenario. This could make the situation quite tough for engineering exporters,” the EEPC India Chairman said.

Garodia proposed lowering the corporation tax rate for LLP and Partnership companies that are registered as MSMEs with the Ministry of MSME from the existing 30% to 15% in order to promote the engineering sector.

He also suggested weighted tax deductions of up to 150% on expenses paid as a result of export promotion in other nations, as well as direct tax exemption on investments made under the Production Linked Incentive Scheme (PLI).

According to Garodia, the plan should take into account the difference between dollar interest and rupee interest while calculating interest subvention.

“The current dollar rate of interest is 6% while for the MSMEs the Re-rate of interest is 11-12% so an interest subvention rate of 5% is necessary to offset the higher interest rates paid by MSME units,” he said.