PR No – 40
30th December, 2024
New Delhi
Streamline Taxation, Bolster Manufacturing and Support MSMEs, suggests PHDCCI to Finance Minister in its pre-budget meeting
During industry interaction with the Hon’ble Finance Minister, Smt. Nirmala Sitharaman, the President of PHD Chamber of Commerce and Industry (PHDCCI), Shri Hemant Jain, presented a series of recommendations aimed at enhancing India’s economic growth.
The suggestions focused on rationalizing the tax structure, bolstering the manufacturing sector, and creating an enabling environment for Micro, Small, and Medium Enterprises (MSMEs) to thrive along with significant reduction in costs of doing business
PHDCCI suggests to reduce tax rates for individuals and Limited Liability Partnership (LLP) firms to 25% as this reduction would not only ease the financial burden on businesses and individuals but would also stimulate investment and economic activity across sectors.
A simplified tax structure can reduce compliance costs and increase disposable income, boosting consumer spending. This increased demand encourages business expansion, driving economic growth. Additionally, the reduction in tax burdens can help mitigate inflationary pressures too, said Mr. Hemant Jain.
Mr. Hemant Jain emphasized the need to completely remove the inverted duty structure that currently exists in several industries, particularly in sectors such as cement, aluminium, steel, packaging material, paper and paperboard industry. The inverted duty structure leads to higher costs for domestic manufacturers, hindering their competitiveness in the global market.
Eliminating these inefficiencies would go a long way in bolstering the manufacturing sector, said Mr. Jain
Industry body, PHDCCI further pointed out that the ease of doing business in India needs to be further improved and percolated at the ground level. This includes reducing the cost of doing business, particularly in terms of capital, power, logistics, land, and compliance costs.
According to the PHDCCI, simplifying procedures and cutting down on regulatory burdens would make it easier for businesses to thrive and would encourage both domestic and foreign investments in India.
With these measures in place, India can realize its potential as a global manufacturing hub, improving its position in international trade, said Mr. Jain
PHDCCI is expecting a significant increase in the size of the Union Budget from Rs. 48.2 lakh crore in 2024-25 to over Rs. 51 lakh crore for 2025-26. Capital expenditure, which is crucial for infrastructure development, should also see a marked increase, with PHDCCI suggesting a rise from Rs. 11.11 lakh crore in 2024-25 to over Rs. 13 lakh crore in 2025-26.
Such a capital expansion is seen as critical for enhancing demand trajectory, creating employment opportunities, and spurring overall economic growth, says PHDCCI
Mr. Hemant Jain highlights the need for the government to enhance the manufacturing sector, increase infrastructure investment, and promote innovation. The manufacturing sector in India currently contributes around 16% to the GDP, and we should aim to increase this share to 25% by 2030.
To achieve this ambitious target, reforms are needed to enhance productivity and competitiveness in the manufacturing sector supported by strong demand trajectory.
PHDCCI’s suggestions focus on addressing the key cost drivers in manufacturing, such as the high cost of capital and logistics. Reducing these costs will enable Indian manufacturers to compete effectively in global markets and help increase share of manufacturing output in GDP
In line with this vision, PHDCCI recommends expanding the Production Linked Incentive (PLI) scheme beyond the 14 sectors. The scheme has been successful in promoting manufacturing in certain sectors, and expanding it to include new areas such as medicinal plants, handicrafts, leather and footwear, gems and jewellery, and the space sector would further enhance India’s manufacturing capabilities.
PHDCCI raised the concern of existing inverted duty structure in sectors like cement, aluminium, steel, packaging material, paper and paperboard industry. Mr Jain emphasized that this issue must be resolved to reduce the cost burden on manufacturers, thus improving their global competitiveness.
On the MSME front, PHDCCI proposed several measures to enhance the growth and sustainability of MSMEs, which are the backbone of the Indian economy.
PHDCCI suggested extending the classification norms of MSMEs for Non-Performing Assets (NPAs) and the Restructuring Scheme for MSMEs, as approved by the Reserve Bank of India (RBI). Currently, dues for MSMEs are classified as overdue after 90 days, which can adversely affect their ability to access credit from banks
PHDCCI recommends extending this period to 180 days to allow MSMEs more time to manage their financial challenges without facing NPA classifications.
Another important proposal was to expand the scope of the Interest Equalization Scheme on Pre and Post Shipment Export Credit. This scheme, which provides interest subvention for MSME manufacturers and merchant exporters, should also include MSME service exporters. This change would ensure that service exporters, who are an integral part of India’s economy, are also able to benefit from the government’s support.
PHDCCI recommended that the MSE Facilitation Councils, which currently cover only Micro and Small Enterprises, should also be extended to cover Medium Enterprises. This would help address the delayed payment issues faced by these enterprises, allowing them to settle dues within 45 days if no specific payment date is mentioned in the purchase order. This change would provide much-needed relief to MSMEs, which often face liquidity constraints due to delayed payments from large buyers.
On the taxation front, PHDCCI welcomed the reduction in corporate tax rates to 25% for most companies, including those with a surcharge. However, it was also suggested that the tax rates for Partnership Firms and LLPs be aligned at the same level of 25%. Moreover, to promote transparency and ease, PHDCCI called for fast-tracking the process for faceless appeals in the tax system. Introducing a statutory period for the resolution of tax appeals and allowing the option for physical hearings in exceptional cases would further streamline the process and reduce unnecessary delays.
Another significant issue raised by PHDCCI was the recent increase in long-term capital gains tax on listed shares from 10% to 12.5%. Since the long-term capital gains tax on shares is now on par with other assets, PHDCCI suggested that the Securities Transaction Tax (STT) be abolished. This move would reduce the tax burden on investors and encourage more investment in the stock market, thereby stimulating economic growth.
Lastly, Shri Jain commended the government’s focus on infrastructure development in recent years. However, he emphasized the need for more focus on Tier 2 and Tier 3 cities, as well as the development of smart villages with adequate public utilities. Expanding infrastructure development beyond major urban centres would help create balanced regional growth, improve the quality of life, and encourage more business activity in smaller cities and rural areas.
PHDCCI suggested special policy initiatives aimed at increasing female participation in the workforce. India’s female labour force participation rate currently stands at just 32%, the lowest among the world’s top 10 economies. To ensure inclusive growth, PHDCCI called for targeted measures to boost the participation of women in the labour market, thereby enhancing overall economic productivity.
The delegation, comprising Mr Hemant Jain, President; Mr. Mukul Bagla, Chairman, Direct Tax Committee; Dr Ranjeet Mehta, CEO & Secretary General; Dr S P Sharma, Chief Economist | Deputy Secretary General presented the Pre Budget Memorandum to the Ministry of Finance, Government of India.
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Warm Regards,
Media Division, PHDCCI