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PUNE: The 5 per cent reduction in corporate tax, as announced in the Budget, will benefit only a handful of micro, small and medium enterprises (MSMEs) across the country.
The corporate tax is levied on the revenue of a company after taking into deductions such as depreciation and other operational expenses. The income tax data shows that many companies show higher expense and pay no tax.
Depending on this data three scenarios emerge:
SCENARIO 1: BASED ON REGISTRATION DATA ON UDYOG AADHAAR PORTAL
Udyog Aadhaar enrolment mechanism replaced all other forms of online and offline registrations from September 2015. Till now, over 35,000 MSMEs have registered themselves in the Pune district. Across state, over 3,80,000 MSMEs have registered .
Going by this, the announcement is likely to benefit at most only about 1,000 MSMEs in the district with a turnover of Rs 50-250 crore (3 per cent of total enterprises). Across the state, only about 12,000 MSMEs stand to benefit from the tax rate cut, provided they are paying any taxes presently. The available data shows that not all of them are paying any tax.
Udyog Aadhaar portal seeks to capture details like the company’s Aadhaar number (mandatorily linked to Permanent Account Number), national industry classification code, previous registration details, if any and investments, among others.
An official in the district industries centre said though the registration is “voluntary” many MSMEs are registering themselves because it offers them protection in cases of non-payments and cheating by their buyers.
SCENARIO 2: BASED ON ACTUAL TAX PAYMENTS, SO FAR
The above could turn-out to be an overestimate, if one reads between the lines of finance minister Arun Jaitley’s Budget speech.
The FM said after the latest decision, only 7,000 or just 1 per cent of the companies with a turnover of over Rs 250 crore will pay taxes at 30 per cent. Also, he said, that the last year’s budget incentive had covered 96 per cent of the universe – all those whose annual turnover was less than Rs 50 crore.
That leaves a mere 19,000 companies nationwide in the bracket of Rs 50-250 crore.
“It is so difficult to get an estimate on the number of MSMEs and the employment they provide. There are no accurate statistics. Therefore, we are getting more and more companies to register themselves,” Giriraj Singh, minister of state, MSMEs, said.
The tax department’s data shows that only about 7,00,000 enterprises across the country pay taxes, whereas the Udyog Aadhaar registration shows that there are over 41 lakh registered enterprises in the country.
SCENARIO 3: WHAT COULD HAVE BEEN?
To get a sense of the number of unregistered enterprises, one has to rely on National Sample Survey Organisation data. According to it, there are about 5.8 crore enterprises in the country, which provide employment to about 12 crore people. If even half of them register themselves, the tax collections would soar manifold.