PHDCCI Calls For Tax Cuts, MSME Support Ahead Of 2025-26 Budget

In its pre-budget meeting, the PHD Chamber of Commerce and Industry (PHDCCI) has urged Finance Minister Nirmala Sitharaman to streamline taxation, bolster manufacturing and provide support to micro, small and medium enterprises (MSMEs). During industry interaction, PHDCCI President Hemant Jain presented a series of recommendations aimed at enhancing India’s economic growth.

The suggestions focused on rationalising the tax structure, bolstering the manufacturing sector, and creating an enabling environment for MSMEs to thrive along with significant reduction in costs of doing business. It suggested to reduce tax rates for individuals and Limited Liability Partnership (LLP) firms to 25% as this reduction would not only ease the financial burden on businesses and individuals but would also stimulate investment and economic activity across sectors.

“A simplified tax structure can reduce compliance costs and increase disposable income, boosting consumer spending. This increased demand encourages business expansion, driving economic growth. Additionally, the reduction in tax burdens can help mitigate inflationary pressures too,” said Jain.

Jain emphasised the need to completely remove the inverted duty structure that currently exists in several industries, particularly in sectors such as cement, aluminium, steel, packaging material, paper and paperboard industry. The inverted duty structure leads to higher costs for domestic manufacturers, hindering their competitiveness in the global market.

Eliminating these inefficiencies would go a long way in bolstering the manufacturing sector, he added.

Ease Of Doing Business In India

PHDCCI further pointed out that the ease of doing business in India needs to be further improved and percolated at the ground level. This includes reducing the cost of doing business, particularly in terms of capital, power, logistics, land, and compliance costs. According to the industry body, simplifying procedures and cutting down on regulatory burdens would make it easier for businesses to thrive and would encourage both domestic and foreign investments in India.

With these measures in place, India can realize its potential as a global manufacturing hub, improving its position in international trade, said Jain. PHDCCI is expecting a significant increase in the size of the Union Budget from Rs 48.2 lakh crore in 2024-25 to over Rs 51 lakh crore for 2025-26. Capital expenditure, which is crucial for infrastructure development, should also see a marked increase, with PHDCCI suggesting a rise from Rs 11.11 lakh crore in 2024-25 to over Rs 13 lakh crore in 2025-26.

Such a capital expansion is seen as critical for enhancing demand trajectory, creating employment opportunities, and spurring overall economic growth, added PHDCCI. The President highlights the need for the government to enhance the manufacturing sector, increase infrastructure investment, and promote innovation. The manufacturing sector in India currently contributes around 16 per cent to the GDP, and we should aim to increase this share to 25 per cent by 2030.

To achieve this ambitious target, reforms are needed to enhance productivity and competitiveness in the manufacturing sector supported by a strong demand trajectory. PHDCCI’s suggestions focus on addressing the key cost drivers in manufacturing, such as the high cost of capital and logistics. Reducing these costs will enable Indian manufacturers to compete effectively in global markets and help increase share of manufacturing output in GDP.

In line with this vision, PHDCCI recommends expanding the production linked incentive (PLI) scheme beyond the 14 sectors. The scheme has been successful in promoting manufacturing in certain sectors and expanding it to include new areas such as medicinal plants, handicrafts, leather and footwear, gems and jewellery, and the space sector would further enhance India’s manufacturing capabilities.

PHDCCI raised the concern of existing inverted duty structure in sectors like cement, aluminium, steel, packaging material, paper and paperboard industry. Jain emphasized that this issue must be resolved to reduce the cost burden on manufacturers, thus improving their global competitiveness.

Cash-strapped MSME Sector

On the MSME front, PHDCCI proposed several measures to enhance the growth and sustainability of MSMEs, which are the backbone of the Indian economy. It suggested extending the classification norms of MSMEs for non-performing assets (NPAs) and the restructuring scheme for MSMEs, as approved by the Reserve Bank of India (RBI). Currently, dues for MSMEs are classified as overdue after 90 days, which can adversely affect their ability to access credit from banks

PHDCCI recommends extending this period to 180 days to allow MSMEs more time to manage their financial challenges without facing NPA classifications.

Another important proposal was to expand the scope of the Interest Equalization Scheme on Pre and Post Shipment Export Credit. This scheme, which provides interest subvention for MSME manufacturers and merchant exporters, should also include MSME service exporters. This change would ensure that service exporters, who are an integral part of India’s economy, are also able to benefit from the government’s support.

PHDCCI recommended that the MSE Facilitation Councils, which currently cover only Micro and Small Enterprises, should also be extended to cover Medium Enterprises. This would help address the delayed payment issues faced by these enterprises, allowing them to settle dues within 45 days if no specific payment date is mentioned in the purchase order. This change would provide much-needed relief to MSMEs, which often face liquidity constraints due to delayed payments from large buyers.

Taxation Front

On the taxation front, PHDCCI welcomed the reduction in corporate tax rates to 25% for most companies, including those with a surcharge. However, it was also suggested that the tax rates for Partnership Firms and LLPs be aligned at the same level of 25%. Moreover, to promote transparency and ease, PHDCCI called for fast-tracking the process for faceless appeals in the tax system. Introducing a statutory period for the resolution of tax appeals and allowing the option for physical hearings in exceptional cases would further streamline the process and reduce unnecessary delays.

Another significant issue raised by PHDCCI was the recent increase in long-term capital gains tax on listed shares from 10% to 12.5%. Since the long-term capital gains tax on shares is now on par with other assets, PHDCCI suggested that the Securities Transaction Tax (STT) be abolished. This move would reduce the tax burden on investors and encourage more investment in the stock market, thereby stimulating economic growth.