India’s growth has been robust even under the effect of current global headwinds; however, the government should continue to push on public capital expenditure, Federation of Indian Chambers of Commerce and Industry (FICCI) said in a statement on Wednesday, January 24. The capex in the Union Budget 2023–24 was increased by 37.4% to ₹10 lakh crore.
After the world was hit by the COVID pandemic, most of the developed countries have been looking at China plus one strategy, opening the doorway for India to become the next manufacturing hub. The government could consider extending the concessional tax regime for manufacturing operations for at least five years in addition to the production linked incentive (PLI), FICCI stated.
The trade association has emphasised on supporting Micro, Small, and Medium Enterprises (MSMEs) by revising the qualifying criteria for mandatory registration on the Trade Receivables Discounting System (TReDS) platform, which enables MSMEs to get funds at a cheaper cost. It also provides MSMEs with the option to choose from various banks without recourse to borrowing.
Currently, it is compulsory for all Central Public Sector Enterprises (CPSEs) and companies with an annual turnover of more than ₹500 crore to register on the TReDS platform. FICCI suggests that this qualifying criteria should be reduced to ₹250 crore, which would increase the purview of TReDS.
Talking about leveraging the Account Aggregator (AA) framework for MSME lending, FICCI said, "Currently, legal and compliance issues are preventing joint and corporate accounts from the scope of AA, thereby excluding a vital market segment of MSMEs from benefiting from AA. A concerted effort led by the Ministry of Finance and regulators would help address this issue.”
Additionally, MSMEs should be provided 180 days instead of the 90 days given currently so that they are not constrained to divert their working capital towards servicing their loan installments and clearing their overdues at the cost of normal business operations. This step could reduce the loss of economic activity and employment as MSMEs will not be forced to shut down their business operations.
“This will also prevent avoidable classification of bad debts and unwarranted litigation by banks, thereby saving the banks from losses,” FICCI added.
To further improve the ease of doing business, the government should make a reform to the tax deduction at source (TDS) rate structure. There should be only three rate structures for TDS payments: TDS on salary at slab rate and two standard rates for TDS for different categories.
To ease the compliance burden on the taxpayers and avoid litigation on characterisation disputes, the government should introduce a “negative list” of payments that will not be liable to TDS. This will include payments to senior citizens, exempt income payments, purchases from GST-registered entities on which GST is paid, etc.
FICCI also suggested that Buyback Distribution Tax should be exempted in the case of listed shares, wherein buyback is under the ‘open market through stock exchange’ method to avoid double taxation.
“Consequently, exemption under Section 10(34A) should also not be applicable and the transactions should continue to be subject to capital gains or business income tax in the hands of the shareholders,” added FICCI.
R&D and patent box regime
It recommends that the benefit of a concessional rate of tax of 10% of income be extended by way of royalty in respect of a patent developed and registered in India. This step will also indirectly encourage Make in India and propel it towards becoming an attractive manufacturing destination.
The benefit of the provision is restricted to ‘true and first inventor of the invention’ which is technically difficult to comply with since ‘true and first inventor’ of a patent under the Patent Law is always an individual, the company stated.
The company added, “It is recommended that the condition of the joint patentee also being ‘true and first inventor’ be omitted to facilitate the company funding the R&D for the development of the patent and owning it as the first assignee can claim the benefit of a 10% tax rate.”
