New Delhi: Micro, small and medium enterprises can expect more tax sops as the government aims to make these firms more competitive vis-a-vis their larger competitors.

Reduction in compliance burden, higher thresholds for applicability of goods and services tax (GST), easing working capital blockages and applicable rates are some of the points the authorities will try to address in the next GST council meeting, said a finance ministry official who did not wish to be identified.

The council’s next meeting is slated for 4 August to discuss both the direct and indirect tax issues facing MSMEs. The meeting was called following an initiative by Prime Minister Narendra Modi to address all issues facing MSMEs—one of the segments worst hit by the government’s decision to cancel the legal tender of 500 and 1,000 notes as well as the implementation of GST.

“The focus of the GST council’s meet with MSMEs next week will be to address sector and state specific issues facing such small industries. States have been asked to flag specific issues impacting MSMEs in this meet," Sushil Kumar Modi, deputy chief minister of Bihar said in a telephonic conversation. Modi added that many of the MSMEs did not pay excise duty in the earlier tax regime, but are now paying GST at a rate that in effect combines the excise and value-added tax rates. They are losing their tax advantage because of this, he said. There are also some sectors like textile which have never even come under the value-added tax regime but are now grappling with GST, he added.

The focus of the council’s meet with MSMEs next week will be to address sector and state specific issues facing such small industries- Sushil Kumar Modi

The centre has circulated a questionnaire to states to understand state-specific issues.

According to the data available with the MSME ministry, there are over 63 million MSMEs in the country engaged in manufacturing, services and trade, more than half of which are in rural areas. These enterprises account for about 110 million jobs and contribute about 29% of the country’s economic output, the ministry says, citing the National Sample Survey (NSS) 73rd round conducted during 2015-16. The SMEs’ role in employment creation makes it a priority for the government to make it easier for them to do business and comply with regulations.

The government has already announced a number of steps to provide relief to small enterprises. The provision of reverse charge mechanism—wherein registered buyers have to pay tax for purchases from unregistered suppliers—has been dropped, firms with a revenue of up to 5 crore have been allowed to file quarterly tax returns while paying taxes monthly and the composition scheme has been extended to more taxpayers. Under the composition scheme, taxpayers can pay a low fixed rate of tax and escape the tedious compliance process under GST.

Chandrakant Salunkhe, founder and president of SME Chamber of India, said SMEs need special tax rates under GST to become more competitive. “The high tax on inputs has ensured that many MSMEs are operating on zero margins. Reasonable tax rates should be applicable on purchases by MSMEs. Further, purchases made by proprietors and directors on behalf of the firm should be accepted. The return filing process should also be simplified so that a SME should not need a professional to file tax returns, except probably for filing the annual tax return," he said.

Close