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The Confederation of Indian Industry has proposed that the forthcoming budget 2013-14 should provide an enabling environment for small and medium-sized enterprise (SMEs), which contributes around 40 percent of industry output, by reconsidering such tax provisions which are adversely affecting the commercial viability of small businesses and are discouraging them from going in from capacity expansion.
In this context, CII has stated that the Union Budget 2012-13, under Section 115JB of the Income Tax Act, has proposed to impose alternate minimum tax (AMT) at the rate of 18.5 percent on all forms of business organizations such as partnership firms, sole proprietorship, among others.
The new levy is an extension of MAT which was introduced by the government to bring zero tax paying companies / corporates under the tax net.
The AMT proposes to tax small entities at the same rate as that prevailing for large companies except for an exemption of initial income/gains of Rs. 20 lakhs.
Chandrajit Banerjee, Director General, CII is of the view that "the imposition of AMT would be extremely hard for SMEs, a bulk of which (97 percent) fall under category of partnership/proprietary firms.
Such enterprises already face numerous challenges in terms of finance, infrastructure, input costs, inadequate skills, apart from external headwinds which is adversely affecting demand.
Under the circumstances, the imposition of AMT at the specified rate would further erode their competitiveness, act as a deterrent to investment and affect the viability of small businesses.
No doubt, there is a provision in the Budget to exempt enterprises from AMT provided their adjusted total income does not exceed Rs. 20 lakhs.
But according to Banerjee, "this limit is highly inadequate and would be insufficient for firms which are planning expansion and modernization of their units. Levies such as these would force units to remain small and not graduate into large units.
Besides, it adversely affects business sentiments without adding much to revenue or expansion of tax base."
Under the existing economic conditions, CII has recommended a complete roll back of AMT for SMEs. In case a complete roll back of AMT is not possible for proprietary or partnership concerns, then there is a strong case for removing AMT in tax exempted states.
CII is of the view that identities such as those operating in certain special category states or those reinvesting their profits in SEZ enjoying exemption under Section 80IC or Section 10AA of the Income Tax Act should be kept outside the purview of AMT, till the period of availability of such exemption to that particular unit i.e. five assessment years from the date of commencement of production.
Such a move would provide some reprieve to SMEs which are already reeling under the impact of tight margins and increased competition, Banerjee stated.
Further, CII is of the view that payment of advance tax by SMEs should be made flexible with the option to pay advance tax during the following quarter.
This would help to ease the burden on SMEs which are already facing payment problems on account of factors such as penalties and high interest rates prevailing on advances received from banks at a time when economic slowdown is affecting profits of micro and small units. (ANI)