Budget 2019: Startups, MSMEs push for ease in working norms

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The Union Budget of 2019-20 is scheduled to be presented on July 5 by the newly-elected Finance Minister – Nirmala Sitharaman. There are a lot of expectations regarding ease in the taxation norms and financial benefits from the Narendra Modi led NDA II government.

With rounds of meeting with various financial and business dignitaries, Sitharaman is preparing for the Budget. In one such meeting with the Community engagement platform, LocalCircles, a lot of key issues were tabled and discussed upon the working and ease of the norms for MSMEs and startups.

Some of the top key concerns are as follows:

1. Efficient refunds of TDS

Many startups and small enterprises have not got TDS refunds from returns filed in September 2018. Because of these delays, these entities have requested government to initiate TDS refunds within 45 days.

2. Effective processing of Input Tax Credit Refunds

The inefficient processing of Input Tax Credit Refunds leads to serious cash flow issues as well as hinders the working capital procedure which are necessary for the budding startups and MSMEs. Since most startups have higher input tax credit and lower output tax, so they have requested to streamline the process of Input Tax Credit Refunds and engage the processing for startups and MSMEs on a priority basis.

3. GST payment on realisation and not on Invoice generation

Since startups and MSMEs are liable to deposit their GST on behalf of the customer by 20th of the following month, this adds to their worry of working capital procedure. Sometimes the payment from the customers doesn’t come even after 90 days, which leads to the blockage of certain amount during that stipulated payment window. Therefore, it is suggested that GST payable for startups and SMEs should be at the point of payment realisation, and not invoice generation.

4. Reverse Charge Mechanism

Many startups are required to pay GST under the Reverse Charge Mechanism for the services procured from abroad. For technology based startups, many services and products are supplied from overseas due to non-availability of those services in India. Under this case, many new startups face cash crunch as they do not have the adequate GST output to cover the Input Tax due to payment of an additional 18% GST for availing the foreign services. It is suggested that all startups and if not feasible at least startups with a turnover of less than Rs 10 crore should be exempted from GST under the Reverse Charge Mechanism for foreign vendor payments.

5. Faster invoice processing by Government for MSMEs and Startups

Many large corporates take several months to pay vendor invoices. This creates major cash flow hurdles for startups and MSMEs since they have limited funds at their disposal. Government last year issued notification number S.O 5622 (E) mandating that all companies must disclose in their half-yearly filing any MSME payments that are pending for over 45 days. It is suggested that the same is made applicable to Government departments (Central and State) and PSUs and they must also be required to pay all MSME invoices within 45 days of invoice.

6. ESOP Taxation

Based on inputs from the startup industry ESOPs should be taxed only at the time of realisation or sale; not at the time of exercising ESOPs.

7. Ease of business with government

Doing business with the government is still a difficult as well time consuming task for startups. The rule that states 20 percent of all procurement of government departments should be done through startups is not being enforced. It is therefore requested to setup an effective as well as efficient mechanism to ease the work opportunities with the government. For that, annual audits and conducts can be introduced for proper implementation of this rule.