Common Tax Concerns Of Small Scale Enterprises

Small scale industries are emerging at a rapid pace. These also have a major role in the economic development of any country. In Indian context, small scale industries account for the employment generation to about 30% of population. These small scale and cottage industries receive government subsidies & tax benefits so that the rural & semi urban population is duly employed and in a position to self serve.

Importance of Small Scale Industries

Small scale industries are vital for the following reasons:

• Employment Generation: They provide jobs to a significant portion of the population, especially in rural and semi-urban areas.
• Economic Development: SSIs contribute to the overall industrial output and exports of the country.
• Utilization of Local Resources: They make use of local resources, which helps in the development of the region.
• Reduction of Regional Imbalances: By promoting industrialization in rural and backward areas, SSIs help in reducing regional disparities.

Problems Faced By Small Scale Industries

For a small sized entrepreneur, there are a lots of obstacles that are required to be tackled, gradually to move one step forward each time. Below are some of the common problems that are obvious for a small scale enterprises:

1. Insufficient Funds: Access to finance is a major hurdle, with many small entrepreneurs struggling to secure loans.
2. Limited Human Resources: There is often a shortage of skilled labor, which affects productivity and growth.
3. Scarce Market Knowledge: Many small businesses lack the market intelligence needed to compete effectively.
4. Strong Competition: SSIs face stiff competition from well-established firms.
5. Sluggish Management: Inefficient management practices can hinder growth and sustainability.
6. Taxation Issues: Lack of expertise in tax optimization can lead to higher tax burdens.
7. Equity Base Strengthening: Building a strong equity base is essential to withstand economic downturns.
8. Regulatory Challenges: Complex and stringent regulatory requirements can be overwhelming.

Which Type of Taxes Are Imposed Upon Small Scale Industries

Every country has its own taxation norms. Taxes broadly are categorized as Direct Taxes and Indirect Taxes. Direct tax is directly imposed upon earning. Be it an individual or an organization. Examples include Income tax, and corporate tax. Whereas the Indirect taxes are imposed upon the customers while purchasing commodities. Examples include VAT (Value Added Tax), GST (Goods and Service Tax), etc. Below are some of the common taxation norms that a small and medium entrepreneur faces initially.

• In case of domestic company, taxes are levied upon any capital inflow in India.
• The indigenous company is supposed to give an additional tax called dividend tax.
• For non-resident companies, tax is imposed upon all the capital flow coming inside the local.
• Service tax is imposed upon the industries which have their annual turnover above 4 lac/ annum. However this tax is exempted  to the organizations below 4lac turnover, SEZ
• Property Tax , Capital Gain tax etc

Because of limited capital flow, most of the small scale industries function in the informal economy which is not a positive aspect for the economic development. Also, apart of the central taxes, certain local body taxes may also be levied there that get sometimes problematic.  The small enterprises shall try to take the benefits of the privileges offered to them and reduce the  taxation risks so as to keep work process smooth.