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Indian Exporters Urge Government to Reconsider New Tax Mandate for MSMEs

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Published: Wednesday, 03 April 2024 16:04

Indian exporters are raising concerns over the implications of Section 43B(h) of the Income Tax Act, which mandates timely payments to micro and small enterprises (MSMEs). They fear that without a level playing field, they may lose opportunities to global competitors, prompting export promotion councils to appeal for exemptions from this provision.

Export promotion councils, in a letter to Prime Minister Narendra Modi, have highlighted the adverse effects of applying this provision to exports. They argue that the stringent payment timelines could disrupt export operations, particularly for small firms, and undermine India's export competitiveness in the global market. The average lead time for export consignments is substantially longer than domestic transactions, posing challenges for MSMEs reliant on timely payments.

Ajay Srivastava, founder of the Global Trade Research Initiative (GTRI), underscored the potential repercussions of Section 43B(h) on India's export narrative and targets. He emphasized the need for broader consultation and urged the government to reconsider its application to exporters, suggesting exemptions for small firms to alleviate compliance burdens and financial strain.

While Section 43B(h) aims to bolster the financial stability of MSMEs, concerns linger regarding its impact on exporters. The provision excludes 'medium enterprises' but encompasses micro and small enterprises based on predefined investment and turnover thresholds. Srivastava acknowledged the government's intent to support MSMEs but cautioned against overlooking the challenges faced by exporters, especially in light of the stringent payment timelines imposed.

Srivastava recommended a pragmatic approach to the implementation of Section 43B(h), advocating for prospective enforcement rather than retrospective application. He proposed delaying its enforcement until April 1, 2024, to provide businesses with adequate time to adjust to the new mandate. This phased approach would alleviate immediate compliance pressures while ensuring the long-term financial stability of MSMEs.

As India seeks to balance the interests of MSMEs and exporters, a collaborative approach involving stakeholders from both sectors is essential. The government's commitment to supporting MSMEs must be balanced with measures that safeguard export competitiveness and facilitate economic growth. By revisiting the provisions of Section 43B(h) and engaging in wider consultations, policymakers can devise a framework that fosters financial stability, operational success, and export growth for all stakeholders.