The Clothing Manufacturers Association of India (CMAI) predicts a staggering loss of Rs 5,000-7,000 crore for MSME apparel manufacturers in the January-March quarter.
This forecast comes as a consequence of an amendment to the Income Tax Act, mandating payments to MSMEs within 45 days. The association attributes this loss to retailers canceling orders with MSMEs and favoring non-MSME players due to the stringent payment terms.
Traditionally, the retail industry operates on a credit cycle spanning 90-120 days, sometimes stretching to 180 days. However, an amendment introduced last year, Section 43B(h), stipulates that payments to MSMEs beyond 45 days are considered taxable income until settled.
This amendment poses significant challenges for retailers, prompting discussions on returning unsold merchandise to manufacturers to avoid payment obligations.
Rahul Mehta, Chief Mentor at CMAI, elucidates that retailers are likely to shift orders away from MSMEs to evade compliance with the 45-day payment window.
In response, the CMAI has petitioned Union Finance Minister Nirmala Sitaraman, advocating for a phased reduction in credit days over three years. They propose a gradual transition to a maximum credit period of 90 days by March 2025, 60 days by March 2026, and finally 45 days by March 2027.
Acknowledging the government's efforts to address MSME challenges, the CMAI emphasizes the need for sector-specific considerations, highlighting concerns like order cancellations. The association underscores the importance of fostering a transparent and compliant business environment while navigating the complexities of the garment sector.
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