Simpler rules may help MSMEs become companies

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A majority of micro, small and medium enterprises (MSMEs) in the country are family owned businesses that are not limited liability companies and so would not be able to benefit from the Budget proposal to cut the corporate tax rate for MSMEs with turnover less than Rs. 50 crore, industry officials said.

“Most of the MSMEs are family-owned businesses and are hence partnership or proprietorship firms,”said D. Gandhi Kumar, former president of the Federation of Indian Micro and Small and Medium Enterprises.

“Just 3% of the MSMEs are registered as limited companies. And, only these will enjoy lower tax according to the budget proposal.”

More than 90% of MSMEs, especially micro-units, are not private limited companies as registered companies have to comply with several norms and maintain a plethora of documents, according to V. Sundaram, president of Coimbatore District Small Industries’ Association.

‘Not enough incentive’

Though the micro-units risk losing their competitiveness to corporate peers, the 5% lower tax may not be enough incentive to spur them to become limited companies, Mr. Sundaram said.

The Centre could frame simpler rules for micro and smaller companies, especially family-owned firms, so that more MSMEs are encouraged to become LLPs or limited companies, said V. Lakshminarayanasamy, vice-president, Indian Chamber of Commerce and Industry