After a new rule under the Income Tax Act, micro and small enterprises (MSEs) in the chemicals industry are getting fewer orders and subsequently seeing depleted revenue.
Section 45B(H) of the Income Tax Act directs a buyer to make payment to MSE manufacturers within 45 days.
Gujarat is the hub of the chemical industry, with 90 per cent of the units here falling in the MSE category. Industry insiders say that earlier various raw materials were procured from local MSEs.
Buyers are now increasingly preferring to get them from importers, as they won’t need to make payment to them within 45 days. Segments such as pharmaceuticals, agro-chemicals, organic and inorganic chemicals are witnessing this change.
The Centre has made it compulsory to pay micro and small enterprises within 45 days to ensure the outstanding payment is not deemed to be income for the buyer.
Many buyers have started buying goods from medium and large enterprises as they will not need to make payments to them in 45 days. A big shift has been seen in MSE-to-MSE business as well. In the chemical industry, MSEs would buy raw materials from other MSE manufacturers. With the new rule, they instead buy these from traders who are importing them.
Nilesh Damani, secretary of the Gujarat Dyestuffs Manufacturers’ Association (GDMA), said, “This is a good rule to ensure punctual payments to MSEs. However, it should be for all to ensure a level playing field. We have raised this with the central government.”
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