Dear Professional Colleagues,
From local to global, Micro, Small, and Medium Enterprises (MSMEs) are shaping India's economic future and paving the way for a Viksit Bharat. The clock has instructed, MSMEs to unlock their full potential, optimally utilise the opportunities and make the best of the resources, thus contributing to a better tomorrow. We are shaping a tomorrow that we deserve with our small and consistent efforts.
The MSMEs across the world are acting as catalyst to inclusive growth and socio-economic development by fostering entrepreneurship & innovation, ensuring growth in rural and underserved areas primarily. MSMEs are the backbone of economy and are accelerating the GDP of a country through innovation and competition, aiding regional development by decentralizing economic activities, and responding swiftly to market changes. United Nations report mentioned that MSMEs constitute 90% of businesses, 60-70% of employment, and 50% of GDP globally which signifies the importance of this critical sector in global economy. Additionally, MSMEs enhance supply chain resilience and contribute to exports, improving global competitiveness. With adequate support, MSMEs are transforming economies, directly contributing to socioeconomic Sustainable Development Goals (SDGs) like SDG 1 (No Poverty), SDG 8 (Decent Work and Economic Growth), and SDG 10 (Reduced Inequalities) and by developing basic needs service delivery models in rural areas and across the economic value chain, MSMEs have the potential to contribute to SDGs like SDG 4 (Quality Education), SDG 5 (Gender Equality) & SDG 9 (Industry, Innovation and Infrastructure), amongst others. No doubt, due to this overall significance, the United Nations General Assembly designated June 27 as "Micro, Small, and Medium-sized Enterprises Day" recognising the significance of MSMEs in economic development.
Global Dynamics of MSMEs
The significance of MSMEs in global context is phenomenal. The World Bank's estimates that 600 million jobs will be needed by 2030 to absorb the growing global workforce, which makes SME development a high priority for many governments around the world. Further it is seen that in emerging markets, most formal jobs (7 out of 10) are being generated by SMEs. The MSMEs role other than, the economic development per se, is the cohesive and inclusive development of the society, as it directly contributes to local economy, employment generation and sustaining livelihoods.
Navigating the MSME Landscape in India
In line with the global phenomena, MSMEs are vital contributor to India's economic progress too, comprising of 63 million enterprises, projected to grow at a CAGR of 2.5% to 75 million enterprises, contributing 30% to nation's GDP, 46% in exports and employing around almost 191 million individuals. The MSMEs are key instrument in ensuring holistic and inclusive development especially ensuring rural development. As India, aims to become a self-reliant $30 trillion economy, nurturing and building globally competitive MSMEs will be essential to become effective cog of Global value chains which contributes almost 50% of global trades and meet aspirations of our youth by providing entrepreneurial and employment opportunity. The MSME sector in the country has various challenges to overcome in becoming worldclass enterprises. First, enhancing financial access to MSMEs, as in India almost INR 69.3 trillion finance is needed for MSMEs while INR 10.9 trillion is available through formal channels according to an International Finance Corporation Report. The MSMEs needs to be made more aware about the benefits of prudent financial reporting and compliances to attract investment. Second, leveraging information technology like AI and digitization to customise the market offerings. Third, technology adoption and product development by MSMEs to meet expectation of global markets and building global alliances for market access and export promotion. And Fourth, attracting and retaining talent for MSMEs is a key challenge to being globally competitive. The government recognizes the importance of MSMEs in India's growth and has introduced various schemes to boost their competitiveness, such as the PM Mudra Yojana, Prime Minister's Employment Generation Scheme (PMEGP), Credit Guarantee for Micro and Small Enterprises (CGTMSE), PM Vishwakarma Scheme, and schemes by KVIC. Similarly reforms like Section 43B(h) of the Income Tax Act for prompt payments and labor reforms strengthen MSMEs and initiatives like GeM and ONDC are providing greater market access.
Empowering MSMEs: The Crucial Role of Chartered Accountants
If we talk of the latest trends today the MSMEs in India are presenting a vibrant picture. It is imperative that as professionals we harness this favourable environment and bring out the best. In this regard, our profession with its multifarious skills, strategic mindset, business acumen and technological exposure is well versed to support MSMEs as a total business solution provider in building strong financial reporting system which will enable to meet compliances obligations, mitigate risk and better access to finances. Similarly, supporting MSMEs in digital transformation and technology adoption with our expertise in exploring technology for data-driven insights and efficient client management. An important aspect is to work with all stakeholders to support on ground implementation of schemes with effective policy making leading to value creation.
ICAI & MSMEs: Partnership for Economic Development
Recognizing the vital role of MSMEs, the Institute has introduced various initiatives to support and empower them. The ICAI's Committee of MSME and Start-up conducts capacity-building activities, including the MSME Yatra across 80 Indian cities, recognized by the Asia Book of Records. This initiative offers mentoring, counselling, and personalized support on foreign trade, enabling MSMEs to enter global markets and increase exports. The ICAI MSME Sahayog program provides professionals with valuable insights to enhance MSME portfolios. Furthermore, the ICAI has signed MoUs with institutions in Tamil Nadu, Kerala, and Odisha to bolster MSME capacity-building. Certificate courses equip Chartered Accountants with skills for professional services in the MSME sector. In India the profession is primarily Small and Medium Practitioner (SMP) oriented with almost 72.6% (70,037) being proprietary firm & sole practitioners and further deep diving upto firms with five members (24,361) the ratio is almost 97.8% in total 96,425 firms. These SMPs having presence in almost every part of the Country are working across India empowering the MSMEs in true essence to turn their dream and aspirations into realities. These SMPs are the trusted advisor of MSMEs. Supporting Small and Medium Practitioners, the institute ICAI enters into various agreements to provide resources to firms in terms of Practice Management Software, Audit Tools, other software, and financial services products. The Institute has brought Digital Competency Maturity Model (DCMM) for Firms to support their digital transformation. Further in the direction to capacity building of our SMPs and to build large and global Indian accounting firms the institute has formed a Committee for Aggregation of CA Firms which has undertaken formulation/updation of guidelines for undertaking constructive reforms in this direction.
SMPs Enabling Tax Compliance
In developing a nation's economy, taxation plays a pivotal role and our Small & Medium Practitioners across the country are playing a critical role in improving tax compliance and collection by educating, creating awareness and supporting MSMEs about tax literacy and related compliances. With collective will and reforms the overall tax collection has increased 2.4x times to 16.63 lakh Crores from 6.96 lakh crores from 2014-15 to 2022-23. Further during the period Corporate tax receipt has shown receding trend from 62% in 2014-15 to 50% in 2022-23 while at the same time personal tax receipts has increased its contribution from 38% to 50% in total income tax collection respectively. Another interesting anecdote is the almost 2.3x rise in number of filing of individual returns (6.97 Crore) as against vis-à-vis filing of Corporate Income returns (10.27 lakhs) in the last decade since 2013-14. The evident changes especially the increasing participation of individuals in filing returns is due to the friendly reforms and awareness being created amongst the youth & MSMEs by the ICAI through Tax Clinics, Financial & Tax Literacy drives. For the development of nation it's crucial to develop a balanced tax regime that rewards honest taxpayers, fosters economic growth and societal development. In pursuit of a Viksit Bharat, I envision a future where our MSMEs and members work together at the forefront of technological innovation and sustainable practices. Embracing digital transformation and sustainability is crucial as we advance towards a New India.
Important Updates Supreme Court Verdict on Tax Audit Limit under Section 44AB of Income Tax Act,1961
The Hon'ble Supreme Court of India delivered a significant judgment on May 17, 2024 in the case related to Tax audit limit under Section 44AB of Income Tax Act,1961 imposed by ICAI through its guidelines, The Hon'ble Supreme Court upheld ICAI's powers and competency to issue the said guidelines, affirming them as reasonable restrictions in public interest which is permissible under Article 19(6) of the Constitution. The Court declared that these restrictions do not infringe on the right to carry on profession under Article 19(1)(g) of the Constitution. The key conclusions from the judgement are the Court validated Clause 6.0, Chapter VI of the Guidelines dated August 8, 2008 issued by the ICAI, which restricts the number of tax audits a CA can undertake. Though the guidelines are valid, the Court specified they are deemed not to be given effect till 01.04.2024. The Hon'ble Supreme Court in the matter opined that "There are many concepts and processes in the present taxation regime that rest, almost completely, on the vigilance of Chartered Accountants and auditors. The very concept of self-assessment carries with it the requirement of good faith practices. The most recent tax reforms seek to achieve transparent taxation by "Honouring the Honest taxpayer." The success of such initiatives depends, to a very large extent, on the vigilance demonstrated by Chartered Accountants." "It is in this context that we stress on the significance of the role played by Chartered Accountants. They can serve as effective catalysts in securing this circle of trust between the taxpayer and the tax administration. This is because a large proportion of the taxpayers in India seek advice of Chartered Accountants to understand the rules of the road. The integrity and standards of Chartered Accountants determine the efficiency in the functioning of the nation's taxation system." The judgment highlighted ICAI's role in regulating the CA profession, emphasizing the importance for high professional ethics and quality service, which are crucial for effective tax administration. It highlighted the critical role of CAs in upholding corporate governance standards, ensuring the reliability of financial statements, and supporting market stability. The Supreme Court accentuated that the independence and integrity of CAs are vital for the success of initiatives like transparent taxation and stakeholders' interest.
Start Up Sphere - 2024
As India rises to become the third largest Startup ecosystem globally, recognizing Startup's significance in India's growth story, ICAI supports startups with resources, mentorship, and a nurturing environment. Following last year's successful Startup Sphere in Mumbai, ICAI will be hosting the second edition from June 27-29, 2024, in Bengaluru. The event aspires to connect entrepreneurs and investors for collaborations and investments, while ICAI will also offer guidance on regulatory compliance and financial management.
Infrastructure - Stepping Stone for Future
With an intent to serve its member and students as well as engage with local community ICAI works towards setting up branches for providing the best services to its members and students at the local level. In this direction the foundation stone of Jabalpur branch building was laid on May 22, 2024. Also, the Council has notified its 176th Branch in Tonk, Rajasthan.
ICAI Examination
In an heartening development, the Board of Studies of ICAI launched the ICAI Digital Learning Campus Portal, featuring Self-Paced Online Modules (SPOM) on May 7, 2024. This important initiative provides flexible, enriched learning for Final Course students without any additional fees. It includes progress tracking, proctored learning, and mandatory tests. The exams under the scheme have started from May 25, 2024 which are being conducted on daily basis. For Intermediate and Final course students who have just completed their exams in May, wish them all the best for their results. It is time to recoup your energies for the next phase of your preparations. In May Examination, around 116,282 students applied for the CA Final and 206,410 students applied for the Intermediate exams. Additionally, 483 members also registered for the PQC (Diploma in International Taxation Exam exclusively for CA members). These exams were conducted smoothly at 591 centres spread across 290 cities in India and 8 cities Abroad. I extend my heartfelt gratitude to all stakeholders for their support in ensuring the seamless administration of these exams both domestically and internationally. I am thrilled to share that the historic decision to introduce triannual examinations for the Intermediate and Foundation levels by ICAI is now set to be implemented from September 12, 2024. We believe this strategic move will greatly benefit our students and contribute positively to your academic journey.
Disciplinary Cases
The ICAI is steadfastly committed to augment the regulatory oversight of the profession. During the year till now 31 meetings of Board of Disciplinary & Disciplinary Committee were held, wherein 158 PFOs considered, 41 hearings concluded, and 115 punishments were awarded. The details in this regard is published in regulatory update page of this journal.
New Government
As the festival of democracy concludes, and the new government will take over. The ICAI will work in tandem with the new government to steer India's on the path of growth and development by fostering transparency, accountability, and inclusive governance nurturing economic progress and prosperity.
CA. Ranjeet Kumar Agarwal
President, ICAI
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