Improvement in MSMEs business processes

The cabinet recently approved a proposal to redefine micro, small and medium enterprises, or MSMES, based on their annual revenue, replacing the current definition that relies on self declared investment on plants and machinery.

It is expected to improve the ease of doing business, avoid unnecessary inspections and at the same time enable the authorities to verify claims of businesses using the sales data they have from the GST Network, the company that processes goods and services tax (GST) returns.

“Taking turnover as a criterion can be pegged with reliable figures available, e.g., in GST Network and other methods of ascertaining, which will help in having a non-discretionary, transparent and objective criteria and will eliminate the need for inspections, make the classification system progressive and evolutionary,” as stated in the Cabinet statement.

The central bank raised the repayment period before MSME loans are classified as bad loans from 90 days to 180 days.

According to the new definition, businesses with revenue of as much as Rs5 crore will be called micro enterprises, those with sales of Rs5-75 crore will be deemed small and those with revenue of Rs75-250 crore will be classified medium-sized. Finance minister Arun Jaitley proposed a 25% corporate tax rate for entities with sales of up to Rs250 crore in the budget.

Under the earlier definition, manufacturers with Rs25 lakh investment in plant and machinery were micro enterprises and those with investments between Rs25 lakh and Rs5 crore were small enterprises. Firms with investments of up to Rs10 crore were classified medium-sized.