Low GDP Growth & Taxation puts MSMEs on Backfoot

More than the slower GDP growth, what worries MSME entrepreneurs in India more is how they would justify lower profits to Income Tax authorities.

The complaints of harassment by Income Tax officials rise during lean years as there is greater pressure for garnering Tax.

“The IT officials have already summoned us and questioned on estimated tax to be deposited in next quarter,” said an MSME entrepreneur based in Meerut.

“If the Tax deposited is less than the previous years, the Tax authorities ask us to give reasons and many a times not in mild manner,” he added.

A Tax expert known in these matters blames the system of fixing Tax collection targets.

“Firstly, the very idea of fixing tax collection targets is flawed. Secondly, many a times, these targets are not in sync with economic cycles. Thirdly, the target system gives the Tax officials at the ground an alibi to twist hand and be unfair leading to corruption,” he said.

Often just to meet targets, the tax officials make frivolous tax demands.

With little resource at their command to fight long legal battles, MSMEs are forced to cough-up unjustified demands.

India’s tax administration is frequently pressing taxpayers to pay money that is not required under law, and which will not stand up to judicial scrutiny or review.

Little wonder, on tax matters, India’s rank in ‘Ease of Doing Business’ is 156th , among the bottom heap.