FISME Calls For Automatic GST Refunds, Proposes 8% Concessional Rates To Aid MSMEs

New Delhi, Sep 25 (KNN) The Federation of Indian Micro, Small, and Medium Enterprises (FISME) has called on the government to implement an automatic refund mechanism for input tax credit (ITC) under the Goods and Services Tax (GST) and to consider concessional rates for inputs that attract higher GST than the final product.

In a letter to the finance ministry, FISME highlighted challenges arising from the inverted duty structure, where many MSME-produced goods are taxed at 5 percent while inputs continue to attract 18 percent GST. 

“With an inverted tax structure, a lot of MSMEs’ working capital could be tied up. I believe the government is both sensible and sensitive about this issue and will address it. It is expected that the government will look into the matter and take appropriate measures. This way, MSMEs can save on working capital as well as transactional costs,” said Neeraj Kedia, Chairman, Banking & Finance Committee.

The association proposed a concessional rate of 8 percent for such inputs in business-to-business (B2B) transactions, ensuring that end-consumer prices remain unaffected while easing working capital constraints for small enterprises.

FISME also noted that MSMEs are the dominant manufacturers of several key products affected by the inverted tax structure, including micronutrient fertilisers, drugs and medicines, packaging boxes, metal utensils, agricultural machinery, and tractors. 

The group emphasised that delays in refunds and accumulated input credits can strain working capital and potentially trigger regulatory concerns under the banking system.
To address these challenges, FISME recommended implementing a time-bound, automatic refund system for Input Tax Credit (ITC), similar to provisions under income tax, and introducing a grievance redressal mechanism to resolve disputes. 

It also suggested allowing inputs taxed at 18 percent to be charged at a concessional 8 percent rate when used to manufacture goods taxed at 5 percent, following the existing GST framework for exporters.

FISME urged the finance ministry to examine these measures promptly to safeguard MSMEs’ interests and strengthen India’s overall manufacturing ecosystem.

(KNN Bureau)