To extend the limit of collateral-free automatic loans for MSMEs to be provided to meet operational liabilities and restart businesses.
Coimbatore: M.V. Ramesh Babu, President, CODISSIA met the Minister for Finance and Corporate Affairs, Government of India, during the Startups Academy “Dhuruv” Award Distribution Ceremony at the Residency, Coimbatore, and submitted the Representation covering the MSME Issues on various heads. The representation covered the below mentioned domains.
To extend the limit of collateral-free automatic loans for MSMEs to be provided to meet operational liabilities and restart businesses.
A separate committee is to be formed to analyze and set parameters for MSME companies for the ratios like DSCR ratio. DSCR compliance ratio for availing loans should be reduced for MSMEs, but currently, it is maintained at par with Corporates.
Lending institutions insist on high credit scores and security collaterals, which many small-time borrowers don’t have. Without the knowledge of digital lending channels, MSMEs end up spending resources to meet complex eligibility factors and fill long paper trails. These cause further delays in financing and liquidity.
For availing loan facilities, the Margin money for micro and small-scale companies to be fixed at 10% and the documentation should be simplified for the same. Also, the loan processing fee has to be waived.
Awareness of financial literacy program that teaches entrepreneurs to better source, invest and expand financing with high return investments, since most of the industries in the MSME sector comprises small businesses without adequate knowledge and benefits about the new schemes introduced.
Banking & Financial issues
Funding for Startups and Banking Issues
The new establishment, especially start-up companies, when they start a business they start with their own funds, borrowed funds from families and availing jewel loans, etc. to develop the business. It may take at least 4 to 5 years for them to break even. When they develop a product, they are not sure if it would succeed.
Only when their business really kicks start, at that time, they go for bank loans, willing to even mortgage their properties to the bank as collateral security or under CGTMSE Scheme, but banks are demand a minimum of three years’ profit showing Balance Sheet.
In this stage, their Balance Sheet would not have made profits due to preoperative and development costs, but unfortunately, Banks reject their applications straight away as they have not generated profit during the start of time even though they are ready to submit projected profitability Balance Sheet for the next five years.
If this mechanism prevails, not a single start-up company under Start-up India can survive.
To advise the Reserve Bank of India to relax the conditions of demand three years’ balance sheet from the start-up companies and kindly instruct them to introduce new loan schemes for start-up companies based on the above points.
Also extension of the limit of collateral-free automatic loans for MSMEs to be provided to meet operational liabilities and restart businesses.
Agricultural Loans under SARFAESI Act
Agricultural loans are availed by farmers to fund seasonal agricultural operations or related activities such as the purchase of land or agricultural tools.
When the farmer’s legal heirs approach banks for availing loans for their non-agricultural, MSME-related business purposes, even though they are ready by giving their agricultural land as collateral security, they are unable to avail the facility. Even though they are ready to give an undertaking that the banks can acquire the property in case of non-payment of the loans availed.
Excepting Tamil Nadu Agricultural Development Bank, no other bank is ready to give loan against agricultural land. Therefore, we requested to kindly instruct the banks to sanction loans on agricultural land as collateral security for MSME business purposes provided the banks can get an undertaking that if the person availing loan is unable to repay the loan, the land given as collateral security for MSME business purposes can be taken by the Bank under SARFAESI Act.
Suitable instructions may please be given to the bankers not to consider the turnover achieved during the pandemic period since normally based on the turnover working capital loans are sanctioned.
To increase the working capital sanction limit to 40%
For the working capital limits like OCC, the margin requirement should be reduced from 25% to 10%.
Raw Materials
Coimbatore is a manufacturing hub powered by MSMEs and caters to the manufacturing of pumps, motors, compressors, textiles, wet grinders, and many other sectors in addition to being in the foundries, valves, and automobiles sector. Despite several demands that have been made by industry bodies requesting the Government to control the increasing trend of all raw material prices, this issue has not been resolved to date.
The situation is worsening each day and the industries are facing a lot of crises such as cancellation of orders, the uncertainty of consumption in the market and decline in exports, etc.
It was found that steel exports are made at a much cheaper price as compared to domestic prices. We are giving below the raw material commodity price comparison.
Since the prices of the above raw materials have increased manifold now, the MSME industries will cease to exist, if necessary corrective action is not directed seriously on the drastically increasing prices of all raw materials and other allied materials. MSMEs are facing cancellation of orders, the uncertainty of consumption in the market, a decline in exports and also closure of units, etc
Due to the heavy price increase, the industries are unable to cope with the crisis, and industries employing 25 – 50 workers are forced to close down their operations and even they are trying to sell their machinery at a very low cost to manage their expenditures. They are unable to pay their bank dues, interest on loans, rent for their business premises, and other statutory dues to the Government.
The CODISSIA has submitted the following few suggestions for the kind consideration, to control the prices of the raw material.
MSME sector contributes 48% of Indian export and the entire export revenue comes from the value-added finished end product and country receives higher foreign exchange, but while exporting at the raw material stage, the foreign exchange revenue to the country will be much lesser. It was found that steel exports are made at a much cheaper price as compared to domestic prices.
This causes a huge setback to the Indian MSMEs in exporting our end product. The countries importing Indian steel at cheaper prices are competing with Indian end products and our MSMEs are being defeated in the global market. This will harm MSMEs and in long run the nations’ foreign exchange revenue. Our request for the benefit of promoting end product export and saving MSMEs, the minimum export price to be fixed which should be a minimum of 10% higher than our domestic price.
An immediate ban on the export of all raw materials to ease domestic supply and check price rise and implement NIL rate of Import Duty and allowing imports of raw materials to India till the Raw Material crisis is over, for smooth supply of raw materials, which are the primary source of manufacturing activity.
Government should not insist on ISI Mark for all the raw materials imported from other countries.
Indian MSMEs are till now very successful in the global market only because of our quality conscious materials used and operations, but now during the past few years since the high-quality electrical grade steel are being exported predominantly and those supplies were given to MSME Sector, this has created a huge setback for the end product exports and even for the domestic requirements MSMEs were left with no other option other than using low-grade materials. This will impact the overall quality of Make in India products and also affect energy efficiency in the long run.
Alloy steel and electrical grade steel sheet meant for manufacturing should be given directly to MSMEs without the interference of Traders. Further, steel being the essential commodity for manufacturing and the frequent price fluctuation will affect the Make in India concept, we request that the steel should be removed from MCX Index to avoid trading manipulations. -
Raw materials are being sold at premium rates and we request the Government to fix the MRP price as the selling rate for all raw materials, to have a constant price at least for six months. Large Industries and PSUs producing all raw materials should focus on MSMEs and supply on priority basis and should allocate at least 50% of their production to MSMEs.
Protection against escalation for some period: Easy mechanism, to hedge raw materials for all MSMEs, NSIC should act as a consolidation agency. They should be in a position to consolidate and hedge overall raw material quantity in the marketplace. This kind of hedging should be possible for one-year (as the rate contract extends for a year) NSIC should make bulk bookings of raw materials at a price with the option of taking deliveries within 12 months as fixed.
Public Sector Enterprises must be instructed to accept cancellation of orders from MSMEs with no penalty / black listing as an increase in raw material price is a Force Majeure event outside the control of the MSMEs. Further, all MSMEs under government contract and suppliers to PSU, should be allowed to revise their price with a fresh quote. For all finalized government and PSU supplies, MSMEs should be allowed to invoke the price escalation clause / Provision for re-quote.
During the last two years, the raw material manufacturing corporates have enjoyed exorbitant profit margins and during the same period, MSMEs have suffered a setback and even more than 30% have become inoperative. To avoid the same and ensure a balanced growth at all levels, a price monitoring committee may be formulated including representation from the MSME sector.
SAIL yard in Coimbatore was closed in the year 2015 for want of construction of railway over bridge. The construction has already been completed in the year 2017 and the SAIL yard in Coimbatore has to be reopened immediately.
Reintroduce the system of allocation of raw materials to MSMEs at a subsidized price as was done earlier, via SAIL, VIZAG, NSIC, SIDCO, and other Nodal Government Distribution Systems.
The CODISSIA requested the Government to take some concrete steps to control the prices of all raw materials and to SAVE THE MSMEs from this difficult situation before they get extinct.
Warehouse for Products manufactured by MSME Units
All NSIC warehouses should allow MSME units to stock their finished goods all over India at a subsidized warehouse charge. This would allow the MSMEs to sell their products through e-commerce portals thereby reaching the customers directly without any delay in delivery time and the payments also become hassle-free.
GST
Eligibility of Input Tax Credit to be widened
Industrial and Factory Buildings – India is on the path towards the development of Infrastructure. The investment in Industrial Infrastructure by the MSMEs will be a backbone for Indian Industrial Development. Therefore, construction materials used for industrial buildings by MSME Units for manufacturing purposes should be allowed to take Input Tax Credit.
Reduction in the Penalty leviable under section 129 of the CGST Act, 2017
Where the goods in transit are not accompanied by the proper documents like Tax Invoice or E-Way Bill or Delivery note the penalty under section 129 becomes leviable. Moreover, if there are defects in the documents accompanying the movement of goods, a penalty under section 129 is levied. The penalty has been increased from 100% to 200% by the Finance Act, of 2021. Even for minor offenses like the digit change in the Vehicle Number [For example, the correct vehicle number 5225, is wrongly mentioned as 5252] this huge penalty of 200% is levied. So this should be reduced to 100%.
A lenient view should be taken for the unintentional mistakes committed during the 2017-18 and 2018-19
During the initial years of the introduction of the GST, there were a lot of glitches in the GST portal. But the trade industry bore the brunt of these portal issues and paid the tax due to the government. So keeping in mind these issues the following reliefs are sought.
B2B sales are wrongly shown in the b2c of the GSTR-1.
The suppliers had shown the b2b sales wrongly in the b2c. As a result, the recipient could not get the ITC in GSTR-2A. The officers are asking to reverse the ITC with interest. This creates a huge burden for the MSME sector. So a lenient view can be taken on this issue. If the supplier gives a declaration that he has sold the goods to the recipient and put it in the b2c table of the GSTR-1, then the officers should not insist on the reversal of the ITC by the recipient.
Waiver of interest for the first two years
Many MSME units could not file the GSTR-3B due to the various issues in the GSTN portal. So, there shall be an interest waiver for these years.
GST rates for Cement and Automobiles should be brought down to 18%.
Government should implement three slab GST rates (5%, 10%, and 15%) as at present it has SIX slabs.
Income Tax
Most of the assessees are not very tech-savvy to file their income tax returns on their own and also, they are not much aware of the Income Tax Act. Even though since March 2020, MSMEs have been facing lockdowns and business disruptions, we are really very much thankful to the Hon’ble Prime Minister of India for taking various measures diligently, allowing us to file Income tax returns for the AY 2019-20 up to 30th June 2020, amidst the massive vaccination drive.
In spite of the fact that the Government has taken all the steps necessary for the smooth running of business operations, the compliance burden has increased threefold among the business people like filing an income tax return, faceless assessment, monthly GSTR1 & GSTR 3B returns, Annual GST Returns and Reconciliation Statements, PF Returns, Company law returns and so on.
After the second wave of COVID 19, MSMEs are affected severely, and bringing back the business as it was earlier, becomes a herculean task, and resuming the operations with full enthusiasm has still not yet come back. MSMEs are strenuously held up in the difficult task of promoting the business, securing the clients and customers, generation of revenues, coordinating the staff and employees for the business operations, administration of the entity, and ensuring their safety and arrangement of working capital funds for the day to day operations.
Further, due to the several restrictions in place on account of the third wave, many industries are on the verge of closing down their operations. In this scenario, completing the tax audit and filing income tax returns within the extended due date will be very difficult.
The last date for filing the tax audit report has been given as 15th January 2022 and for the income tax return, it is 15th February 2022. In normal circumstances, the gap between these two due dates is generally two months. Therefore, we requested to provide a sufficient time gap of at least two months in between for the benefit of MSME taxpayers as well as tax audit professionals.
Due date of Scrutiny Assessments
The due date of scrutiny assessments for A/Y 2019 – 20 & other scrutiny assessments under other sections were 31st December 2021. Also, we have received notices for scrutiny assessments for A/Y 2019-20 & 2020-21. All these notices are time-bound and we need to respond before the said time and date.
As far as Micro industries, traders, and Tax professionals are concerned, they find it almost impossible to file ITRs, Tax audit reports, GSTR-9, GSTR-9C or to comply with the scrutiny assessments in the given time.
Glitches in the new Income tax filing portal
The Central Board of Direct Taxes (CBDT) launched the new income tax e-filing portal on 7th June 2021. However, the website is not functioning at all times, especially during the first week continuously.
Frequent Updation of Utilities / Schemes
Below are the launching of ITR Utilities / Schemes date wise as follows:
CODISSIA believes that the Government will appreciate the fact the latest release of the 3CD Tax audit report was made only on 06-01-2022. The scheme gets frequently updated based on the inputs given by us. However, the portal is not free of errors and stable for the users to be hassle-free.
Issues in e-verification of ITR
After filing the ITR, verification must be undergone by Individuals using Aadhaar OTP. In spite of the fact that it was done earlier, the portal asks for e-verification for the second time. The same is the situation if DSC is also used for filing income tax returns.
SMS for registering DSCs
From 07-01-22, we receive the following SMS.
“Dear Taxpayer xxxxxxxxxx, please register your DSC on the new e-filing portal if not already done, since earlier registration on the old portal is not valid. E-filing ITD although we have registered the DSC earlier.”
At times, the portal asks to change the PIN, and it throws an error of PAN mismatch, sometimes even when the server is down. Likewise, in the case of registered DSCs, a lot of issues are being faced while using the DSCs for verification purposes, specifically in the case of Karta / Partner / Directors, etc.
Mismatch of data in 26AS and AIS
The AIS was introduced only recently and we could notice a lot of mismatches in data between AIS and 26AS.
Further, the new system of AIS and TIS has added to the new set of verification and reconciliation of data by taxpayers. It is worth noting that in most of the cases, there is a lot of mismatch in the information reported in TIS as compared to the actual details and the same has been reported in Form No. 26AS as well.
This has resulted in posing an additional burden on the taxpayers to reconcile the differences before filing the ITR to ensure that there are no further notices / unwarranted 143(1) adjustments and unnecessary hassles post-filing of Income Tax Returns.
Errors in Form 29B - We could notice overlapping of data between 115JB and 115JC.
Filing Errors - While filing the return, the 'loading' gets stopped midway and says “error in submission and so please try later”.
Errors in uploading Form 10A and unknown Errors - While uploading Form 10A, we get the Submission failed error and unknown errors.
As stated above, CODISSIA has never demanded any extension of benefits in the recent past before the Ministry of CBDT. We have requested to consider our Representation on the following grounds until the Income Tax Portal gets stabilized, fully functional, and also error-free.
To grant a complete waiver of Penalty, Late Fee, and Interest.
To allow the loss to be carried forward for the returns being filed during this period even if it is filed after the respective due dates.
To grant condonation for delays in filing various statutory forms, especially Form 10B which are subjected to be filed only through the Portal.
To allow the filing of revised returns in case of any errors that arose due to technical glitches on specific requests.
While our primary request is to address the various glitches, a few of which are listed above, at the earliest so as to enable the smooth filing of Income Tax Returns and other forms on the new e-filing portal. Considering the current situation of the portal, we also requested to kindly grant the extension in filing the due dates in the interest of the taxpayers.
The rates of tax concerning companies and LLP have been reduced from 30% to 20% + Surcharge and Cess from the AY 2020-21. The MSME sector is predominantly run as sole-proprietorship or partnership and proprietorship firms have been adversely affected due to the high-Income Tax rates at 30% when compared to the reduced rates of 20% for companies. Therefore, the rate of tax for partnership firms is maintained at 20%.
The maximum rate of tax for Individuals i.e. for the income above Rs.10 Lakhs, the rate of tax should be revised to 20%.
INFRASTRUCTURE
Coimbatore is witnessing a radial development, with industries growing in the eastern and northern areas of the city, the hospitality sector in the western areas, and logistics in the southern areas. Therefore, we request for infrastructure development will benefit the overall industrial sector to further improve their business and thereby the GDP will considerably be increased.
Focused Infrastructure up-gradation in tier II and tier III cities will attract large industries and medium-scale industries, leading to balanced Economy and industrial growth in the city. These Large industries can be complemented with the existing MSME supply chain and workforce available. We request the Government of India to allocate more funds.
Coimbatore needs to be developed as the major Industrial City and large-scale industries have to be brought within a radius of 100 km. as Coimbatore is a hub of MSMEs.
Coimbatore-Madurai, Coimbatore-Karur, and Coimbatore-Hosur Industrial Corridors to be developed which will make to gain GDP double in three years.
Speeding up of all on-going projects, Flyovers, up-gradation of stations, modernizing Goods Terminals and Handling is urgently required.
Formation of Eastern and Western Bye-pass Road/Ring Road.
L&T Bypass road from Nilambur to Madukkarai (NH 544) six-lane work to be initiated immediately.
Cochin Frontier Road - Palladam to Madukkarai Road needs to be widened and formed as a Four-Lane Road.
Palladam to Chinthamanipudur Road to be widened and formed as a Four Lane Road.
Sathyamangalam Road (NH 948) - An elevated road from Ganapathy (Textool) to Saravanampatti is very much essential. There is a proposal for the new alignment of a single road from Saravanampatti to Bannari, which should be a 4-lane road up to Bannari, which will be much useful for easy movement of vehicles going into Karnataka State.
Bus port project to be developed on a priority basis to reduce the road traffic inside the city limits.
All Highways Roads in Tamil Nadu especially in Coimbatore, all the four-lane roads should be converted into 6-lane roads and all the 6-lane roads should be converted into 8-lane roads. We request the Central Government to provide fund allocation for the above work and also the work should be speeded up.
Railways
Metro Rail Projects for Coimbatore – 136 km covering Avinashi Road, Mettupalayam Road, Trichy Road, Sathyamangalam Road, and Thondamuthur Road.
Additional overnight Bullet trains from Coimbatore to Chennai, Bangalore, Trivandrum, and Tirunelveli is most urgent.
Suburban circular train services with Metro trains are the need of the hour for Coimbatore.
Speeding up of all on-going projects, Flyovers, up-gradation of stations, modernizing Goods Terminals and Handling is urgently required.
Air Connectivity
Coimbatore has more than 1 lakh MSMEs. International Medical Tourism, Textiles, Software, and Education Centers are growing exponentially in and around Coimbatore. Due to limited airlines, flying in and out of Coimbatore, at the current rate of flying is very expensive and not affordable for MSMEs. Hence, consider more domestic connections from Coimbatore to Delhi, Mumbai, Pune, Ahmedabad, Kolkata, and a few airports in the North-East of India too.
An airport infrastructure with direct flight connections to the continents like America, Europe, Africa, and Australia is very important for business development. Coimbatore must be well connected with international hubs of foreign airlines directly by international carriers immediately, which will help the passengers travel from and to different continents seamlessly.
International Spokes Hub to be developed.
Airport Expansion
Most of the operators like Indigo, Spice Jet, Singapore Airlines, Air Lank, Air Arabia, and Emirates are ready to operate to various International Destinations. Once our Coimbatore Airport runway is expanded, wide-bodied international operational aircraft can land and take off. There will be a huge revenue if Coimbatore Airport is getting expanded soon. The Coimbatore airport land acquisition process will be completed by September 2022 and we request Central Government for necessary funding for the Coimbatore Airport expansion project.
Government to form a Special Purpose Vehicle to plan a state of the art international airport in an area of 4000 acres, which should have facilities to cater to 2 crore passengers, a cargo complex, aircraft maintenance hangers, aerospace parks, and air defense manufacturing industries that will bring development to the business people in this part of the country.
Team CODISSIA hopes that the Finance Minister, Government of India, will consider favorably, all the above issues and take suitable action regarding the same.