HYDERABAD: What has demonetisation done to the struggling and attention-sought Micro and Small and Medium Enterpises (MSMEs)? These industries which were directed to go cashless before the implementation of Goods and Service Tax (GST), expected in about four more months, have been forced to go digital in their transactions with the Nov 8 announcement of the PM.
The end result, as of now, is a vast majority of them from the two Telugu-speaking states, who have lost the window of opportunity for going digital, reporting a loss in revenue up to 60 per cent.
Though industry experts say that the initial shock felt by the industry will taper off in the long run with the roll out of Goods and Service Tax (GST).
“The state governments, especially in TS wants to go cashless. Dealings with the government will be cashless for MSMEs,” Ravindra Modi, president Federation of TS and AP Chambers of Commerce and Industry (FTAPCCI) said.
Presently, 42 percent of commercial tax in TS is in cash even though that is only 20 percent of overall revenue, he added. When GST will be introduced, MSMEs will have have to switch to online cashless transactions. This will leave a money trail that will bring the sector under the tax regime, he said.
A vast majority of MSMEs are still not registered companies. Most of the companies fail to register due to strict rules. If a unit reaches the threshold of Rs1.5 crore in annual turnover, it comes under the Central Sales Tax (CST). Some of these companies to avoid tax compliance are split into two when they reach this tax threshold. The single tax regime of GST would bring the threshold down to about Rs 10 lakh. Taxes will also have to be filed and paid online, increasing tax base, experts say.
Though most of the MSME owners welcome GST, with demonetisation they have to face hurdles associated with the transition to GST regime sooner than anticipated.
“Those working in my jute unit do not have bank accounts. They insist on cash payments as they do not have proper access to ATMs and other banking facilities,” BV Ramarao, president of Federation of AP Industries (FAPI) said. “We will be filing taxes online, it’s not possible to make all our cash transactions online,” he added.
The withdrawal limit set by Reserve Bank of India (RBI) for current account is Rs 50,000 per week. Earlier this month, the ministry of MSME made a request with the finance ministry to raise this ceiling to Rs 2 lakh.
“Getting cash for daily transactions have become impossible. The problems faced by MSME sector is not so different from any other sector but this sector employs close to 80 million people in the country. Will it be possible for them to switch to cashless transactions in a short notice?” BV Ramanarao wonders.