Ensuring enhanced official boost to SMEs in next fiscal
Saturday, 6 June 2009
THE government is learnt to be coming up with some tax incentives for the small and medium enterprises (SMEs) as well as the cottage industries from the next fiscal (2009-10). The incentives will include a raise in the value added tax (VAT) exemption provision for the SMEs from the previous turnover ceiling of Tk 2.4 million to Tk 4.0 million. In a similar fashion, the cottage industries, too, will enjoy an elevated tax exemption ceiling from Tk 1.5 million to Tk 2.5 million on the investment of capital machinery. Under the arrangement, the SMEs with turnovers below Tk 4.0 million will have to pay a turnover tax at 4.0 per cent, instead of 15 per cent VAT.
The decision of the newly elected government to be incorporated in its first budget to help spur the growth of the SMEs and other local industries in the next fiscal is undoubtedly a good move. But it is only expected of any government having popular mandate. It is also a very necessary for a country to try hard to enhance its status from one of a least developed country (LDC) to a developing one. What is of still greater import is that at this moment the country will need to look inward more than ever before as the rest of the world is reeling from a severe economic crisis precipitated by falling demands for goods and services in the highly developed countries in the northern hemisphere. As the earnings from exports, remittances, foreign aid and foreign investment are getting more uncertain in the face of global recession, Bangladesh needs to turn its attention also to its inherent potential to create jobs and internal demands. In that case, the SMEs are ideally placed to deserve the government's support for development. From that perspective, the tax incentives the government is to provide to the SMEs and cottage industries are well-timed.
The goodwill of the government towards the SMEs and the cottage industries or to the local industries for that matter apart, the crux of the problem is to have a clear picture of entire sector to be addressed by the government. How does the government define the SMEs? Where are those SMEs situated? Do they also include all the small and medium scale enterprises situated in the rural areas? These questions are pertinent and warrant due attention before any worthwhile service could be rendered to the SMEs and the local industries.
Official definition says medium industries have a value between Tk 15 million and Tk 100 million, while a small enterprise is valued below Tk 15 million. Such definition of the SMEs has a certain urban bias. But according to various unofficial surveys, 16 per cent of the small enterprises have capitals below one hundred thousand takas, while 35 per cent of them require capital between one and five hundred thousand takas and 29 per cent of then run with capital between Tk 0.5 mullion and 5.0 million. Or in other words, since officially the bulk of these enterprises are not recognised as SMEs, there is also no question of their getting access to the various government benefits that are, or; would be, provided to the recognised categories of enterprises.
Under the circumstances, the government will have to carry out a comprehensive survey of the actual status of the SMEs and cottage industries across the country including those situated in the rural areas. That would provide a complete picture of the SMEs all over the country for the purpose of helping them with tax or other benefits. Tax relief is but one side of the story. The SMEs and cottage industries will need more than that for their sustainability and growth. They are in desperate need of financial assistance such as bank credits on easy terms. For that purpose, the rural SMEs, too, have to be recognised officially and categorised under the government list. They need public policy supports as well as access to credit from the mainstream financial institutions.
The decision of the newly elected government to be incorporated in its first budget to help spur the growth of the SMEs and other local industries in the next fiscal is undoubtedly a good move. But it is only expected of any government having popular mandate. It is also a very necessary for a country to try hard to enhance its status from one of a least developed country (LDC) to a developing one. What is of still greater import is that at this moment the country will need to look inward more than ever before as the rest of the world is reeling from a severe economic crisis precipitated by falling demands for goods and services in the highly developed countries in the northern hemisphere. As the earnings from exports, remittances, foreign aid and foreign investment are getting more uncertain in the face of global recession, Bangladesh needs to turn its attention also to its inherent potential to create jobs and internal demands. In that case, the SMEs are ideally placed to deserve the government's support for development. From that perspective, the tax incentives the government is to provide to the SMEs and cottage industries are well-timed.
The goodwill of the government towards the SMEs and the cottage industries or to the local industries for that matter apart, the crux of the problem is to have a clear picture of entire sector to be addressed by the government. How does the government define the SMEs? Where are those SMEs situated? Do they also include all the small and medium scale enterprises situated in the rural areas? These questions are pertinent and warrant due attention before any worthwhile service could be rendered to the SMEs and the local industries.
Official definition says medium industries have a value between Tk 15 million and Tk 100 million, while a small enterprise is valued below Tk 15 million. Such definition of the SMEs has a certain urban bias. But according to various unofficial surveys, 16 per cent of the small enterprises have capitals below one hundred thousand takas, while 35 per cent of them require capital between one and five hundred thousand takas and 29 per cent of then run with capital between Tk 0.5 mullion and 5.0 million. Or in other words, since officially the bulk of these enterprises are not recognised as SMEs, there is also no question of their getting access to the various government benefits that are, or; would be, provided to the recognised categories of enterprises.
Under the circumstances, the government will have to carry out a comprehensive survey of the actual status of the SMEs and cottage industries across the country including those situated in the rural areas. That would provide a complete picture of the SMEs all over the country for the purpose of helping them with tax or other benefits. Tax relief is but one side of the story. The SMEs and cottage industries will need more than that for their sustainability and growth. They are in desperate need of financial assistance such as bank credits on easy terms. For that purpose, the rural SMEs, too, have to be recognised officially and categorised under the government list. They need public policy supports as well as access to credit from the mainstream financial institutions.