Union Budget 2023-24 Govt must lower GST rate to back indigenous software creators

Rahul Raj

Union Budget 2022-23 will be remembered by all as a landmark “digital budget” the Union Finance Minister initiates some path-breaking beginnings made towards leading India into digital transformation. All necessary registrations, such as those for forming a business, opening a store, registering for the goods and services tax (GST), obtaining an MSME (micro, small, and medium businesses) certificate, etc., should be handled through a single window. That will enable MSMEs to make significant time, effort, and financial savings.
The government should promote manufacturing, consumption & export of Made In India products. Digitization will also help in widespread e-invoicing implementation and administration for SMBs, helping in efficient business processes and operations. At present, the GST, with the full input tax credit, is 18 per cent for all software products produced and sold in India. This rate must be tapered down to support indigenous creators of software intellectual property (IP) in India.
Speaking of startups, they may find it easier to fulfill their daily working capital needs if the minimum alternative tax rate (MAT) for qualifying enterprises is reduced from 15 per cent to 9 per cent. This is especially true in the early stages.

Tax incentives for MSMEs adopting technology
Indian MSMEs are witnessing constant push from the government towards digitisation of business functions. In the Union Budget 2023-24, the government may also consider announcing a full-fledged integration of different portals, such as e-Shram, Udyam, etc. servicing MSMEs. Last year, e-invoicing was made mandatory for businesses with turnover above 10 crores. The government is expected to further reduce the turnover threshold to 2-5 crores. Further, the government may consider announcing tax incentives on expenditures associated with expanding and using new-age technology applications for operational and organisational purposes.

Targeted interventions to improve MSME credit
Announcements with respect to providing MSMEs with a flexible line of credit is one of the essential requirements. Existing mechanisms such as Factoring and TReDS have not been very successful in facilitating credit access to micro enterprises. Micro and small enterprises face severe short-term capital needs because of challenges in the supply chain and delayed payments. There is an expectation that the government in Budget 2023-24 may come up with different targeted interventions to resolve supply chain finance concerns. Further, it may consider providing an inclusive regulatory framework and ease in regulatory burden for NBFC-fintech partnerships involved in supply chain finance.

Neobanking framework in India
In Budget 2022-23, Finance Minister Nirmala Seetharaman announced the setting up of 75 digital banking units (DBU) in 75 districts by RBI-regulated banks. The step is aimed to enable access to the core banking services for rural markets and improve financial inclusion. The government may consider the NITI Aayog’s recommendation to issue a licensing framework for such digital banks focussing on creating niche solutions for specific underserved segments, such as credit products for MSMEs.

Credit guarantee schemes for MSMEs
In its effort to recover from COVID-induced slowdown, India has witnessed the significant growth in credit to MSMEs in the last two years. This was largely supported by incentives provided under the Emergency Credit Line Guarantee Scheme (ECLGS). In Budget 2022-23, the government may also think of revamping credit guarantee schemes, grants and subsidies to support loans originated by partnerships between RBI regulated entities and fintech entities.

Introduction of National Logistics Policy
The government may announce implementation of National Logistics Policy (NLP) in this budget, as introduced by PM Narendra Modi in September 2022. NLP has been framed with the objective to reduce the cost of logistics in India from current 14-15 per cent of GDP to the global average at 8 per cent of GDP. NLP aims to mobilise digitisation and data-driven capabilities for streamlining cooperation and support within India’s logistic sector and improve ease in movement of goods. NLP 2022 lays out an extensive multi-stakeholder scheme for the growth of the entire logistics ecosystem to solve concerns of high cost and inefficiency. In 2025, it was predicted that this industry will reach 380 billion dollars with a 10-12 per cent CAGR.

Rahul Raj is Co-Founder & CEO, FloBiz, a FinTech startup