Exporters in India are intensifying their calls for an exemption from the recently implemented 45-day payment rule for goods purchased from micro and small enterprises (MSEs), citing potential adverse effects on their operations.
In a collective appeal addressed to Prime Minister Narendra Modi, leaders of prominent export promotion councils and the Federation of Indian Export Organisations have urged for the exemption of export companies from section 43B(h) of the Income Tax law.
The rule, introduced through the Finance Act 2023, is designed to ensure timely payments to small businesses. It grants tax breaks to companies that settle their dues to small business suppliers within the timeframes stipulated by the MSMED (Micro, Small and Medium Enterprises Development) Act, 2006 – particularly within 45 days if there is a formal agreement, and within 15 days without one. Failure to meet these deadlines results in the inability to deduct these expenses for tax purposes.
Exporters argue that the payment cycle for exports significantly surpasses the 45-day threshold, averaging around 120 days. This duration is in stark contrast to the nine-month period allowed by the Reserve Bank of India (RBI) for the realisation of export proceeds. They highlight that the average lead time for an export consignment is approximately 90 days, considerably longer than the maximum 14 days for domestic consignments.
The prolonged payment cycle for exports, compounded by the need to maintain larger inventories due to economic and demand fluctuations in destination markets, has intensified liquidity challenges for exporters. They stress the necessity for exemptions or an extension of the 45-day period to 120 days to better align with the operational realities of the export sector.
While expressing solidarity with the government’s objectives to bolster the financial stability and operational viability of MSEs, exporters and economic think tanks such as the Global Trade Research Initiative (GTRI) recommend that exemptions be granted to exporters, especially for a transitional period, to ensure a level playing field and foster the growth and sustainability of Indian enterprises in the global arena.
The appeal comes amid a backdrop of heightened concerns among exporters regarding liquidity constraints and operational challenges exacerbated by the stringent payment regulations, prompting stakeholders to call for urgent policy interventions to safeguard the interests of the export sector.
The Ministry of Finance has yet to issue a formal response to the exporters’ plea, leaving the industry awaiting further developments as they navigate the evolving regulatory landscape.
For now, exporters remain hopeful that their concerns will be addressed promptly, facilitating smoother operations and fostering an environment conducive to sustained growth and competitiveness in India’s export landscape.
