Budget 2018 must put in place a mechanism that is able to weed out practical problems faced by the business community, provide stability, and put India on the track to prosperity
The Union Budget to be presented by Union Finance Minister Arun Jaitley is an unsurpassable opportunity for the NDA Government to silence the critics on how the economy is being handled. Simultaneously, it will set the agenda for critical issues pertaining the growth of the economy and provide guidance and direction for the same for the coming year. The onus should be to not appear ambitious and plan
for the long-term but to focus on practicality and efficacy in the short-run. This is the need of the hour as Budget 2018-19 will be presented in the aftermath of a financial year that witnessed some of the biggest changes in the economy. There is a specific need to insulate the economy from the after shocks of these reforms, stabilise it and put it on the path to progress and this is why the Budget 2018 is more relevant than ever.
Budget 2018 is a landmark event as it will be the first one after the implementation of the Goods and Services Tax (GST). The robust nature of the Indian economy was on display in 2017 when its mettle was tested against the double whammy of demonetisation and GST. Among the critical economic issues facing the nation today, the need is to handle the ripples created in the wake of demonetisation and GST and to that effect, the current Budget provides a singular opportunity to the Finance Minister to assuage and calm the business community who bore the major brunt of the GST implementation. Even today, small and medium scale enterprises are of the general opinion that enough is not being done by the Government to take the sting out of GST, which is directly impacting their profit margins which are under threat due to plethora of factors, such cheap Chinese imports and so on.
Micro, small and medium scale enterprises (MSMEs) constitute the mainstay of the economy. According to Confederation of Indian Industry, MSMEs contribute around 6.11 per cent of the manufacturing Gross Domestic Product (GDP), 24.63 per cent of the GDP from the service activities and 33.4 per cent of India’s manufacturing output and provide employment to around 120 million people directly and indirectly. Given the importance of MSME for the overall growth of the economy, this sector needs to stabilise first. Through the Budget presentation, the Finance Minister can provide a larger mandate and direction to the GST Council so that frequent knee-jerk decisions, that currently emanate after the GST council meetings once in a while, are done away with and a much more thought-induced working is put in order. The intermittent fine tuning to the GST mechanism, tax structure and slabs has led to an unsure environment, besides giving rise to perception that the Government is adjusting the GST structure as a part of populist move before the elections and not based on actual feedback from the economy. The Finance Minister must utilise the Budget platform to do away with this misconception.
According to Chief Economic Advisor, Arvind Subramanian, India has tide over the initial negative impacts of GST and demonetisation and the Economic Survey shows that there has been a 50 per cent increase in the number of indirect taxpayers and there has also been a large increase in voluntary registrations, especially by small enterprises that buy from large enterprises wanting to avail themselves of input tax credits. Positive news notwithstanding, there still are numerous glitches and the world can be an unsurpassable learning platform for India as it seeks to find the true balance between economic reforms and economic growth. Many countries across the globe have not only implemented the GST effectively, took care of the fledgling SME sector but have also clocked impressive economic growth resulting in some stunning case studies.
Singapore is a good example as the Government introduced a slew of measures between 1993 and 1994 to help Singaporeans cope and tide over the effects to GST implication, like reductions to existing taxes, such as the top personal income tax rate and taxes on motor vehicles, increased grants for lower-income households and improved subsidies for some public services, such as health and education, in addition to introducing the Economic Restructuring Shares scheme, ie giving ‘shares’ of the country to citizens, thereby making them stakeholders in the nation’s future and prosperity. Similarly, when Australia implemented GST in 2000, they balanced it with tax cuts, which led to post-reform increase in disposable incomes. Apart from launching a comprehensive educational programme well in advance of the implementation of the new tax system, the Government even provided funds to any small-to-medium businesses that needed transition assistance to the new system.
As it is widely known, the Indian GST is rather complex and tougher to comply due to its cumbersome and complicated filing process, with three times monthly and once annually with separate returns required for each State in which a company operates. When compared to this, countries like Australia, Malaysia, Singapore and New Zealand have either quarterly or monthly filing, based on the size of the business.
Through this Budget, the Finance Minister can give huge relief to MSMEs by reducing the frequency for their GST filings. In the 23rd GST Council meeting, it was announced that companies with an annual turnover of less than 1.5 crore can file the GST quarterly and all other companies with a higher annual turnover than this, monthly. However, the question arises as to how this annual turnover threshold was chosenIJ Where does the affordability start for any small enterprise to file GST on a monthly basisIJ Is there any study conducted that indicates thisIJ Choosing this turnover, in the absence of any such evidence, shows the apathetic nature of the Government towards small businesses.
MSMEs in India are still defined from the investments in plant and machinery for manufacturing firms and equipment for service sector firms, which by themselves have become archaic and need amendments due to inflation and dynamic market conditions. For example, in China an MSME can be an enterprise with one to 3,000 employees; total assets from ¥40 to ¥400 million and business revenues from ¥10 to ¥300 million, depending on the industry.
Meanwhile, the European Union considers an MSME as an enterprise with up to 250 employees and turnover of no more than €50 million or a total balance sheet of no more than €43 million. India should follow global standards and classify MSMEs according to turnover before deciding which companies should be allowed quarterly filing of GST returns.
Since the Economic Survey presented by the Finance Minister on Monday indicates that the worst might be over and that India is on the way to becoming the fastest growing economy in the world, he should further boost the economy by making sure that during these times, when businesses are adjusting themselves to the GST reforms, tax rates should be cut this year to reduce the potential cash flow inadequacies and also announce budgetary allocation for MSMEs for this transitionary period so that they can tide over their working capital requirements.
With elections round the corner in 2019, the present Budget is an opportunity to put in place a mechanism that is able to effectively weed out any practical problems faced by the business community, provide stability and in the process put India securely on the track of development and progress.
(The writer is Assistant Professor, Amity University)
