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 In light of the challenging global cash flow that are adversely affecting the MSME exporters, the Federation of Pharmaceutical and Allied Products Merchant Exporters (FPME) has urged the Union ministry of finance and the Union ministry of commerce to exempt exporters from making payments to suppliers within 45 days as per Section 43(B) of the Income Tax (IT) Act. This will facilitate them to make payments based on their understanding and agreement with the supplier without the government intervention.
Sandeep Modi, joint secretary of FPME, said that the payments cannot be made to the suppliers within 45 days due to reduced sales in key export markets like Africa, which has negatively impacted overall cash flow within the industry.
Exempting exporters from the stringent 45-day payment requirement could help stabilize their financial operations, allowing them to navigate the turbulent economic landscape more effectively.
The demand also comes in the wake of a sudden spike in freight costs which has doubled due to rerouting of shipping lines amid disruptions from the Israel-Hamas conflict. “Since the business transaction is done between the supplier and the exporter under an internal legal agreement, exemption under Section 43 (B) will give sufficient time to the exporters to make the payment in a viable and timely manner,” Modi added.
India's pharmaceutical exports to Africa fell by 5% in the fiscal year 2023 due to the current geo-political situation.
“Section 43(B) provision aims to protect MSMEs from delayed payments, ensuring they receive timely compensation for their goods and services. However, this regulation is posing significant challenges for exporters, especially in the current global economic climate,” an exporter lamented.
Exporters often face extended payment cycles due to international trade practices, leading to cash flow issues that make it difficult to comply with the 45-day payment mandate. Fluctuations in global currency markets add an additional layer of complexity, impacting the financial stability of exporters. The ongoing economic pressures worldwide have exacerbated the difficulties in maintaining consistent cash flow, further straining the ability of exporters to adhere to the payment deadlines.
The export sector is crucial for the country's economy, contributing significantly to foreign exchange reserves and overall economic growth. Given the global cash flow and currency situation, a more flexible approach is necessary to ensure the continued viability and competitiveness of Indian exporters.
A targeted exemption for exporters from the 45-day payment mandate could provide the necessary relief to maintain cash flow and financial stability. Implementing more flexible payment terms for the export sector will help it align with international trade practices.
There is an urgent need to establish mechanisms to monitor and support exporters, ensuring that while they are exempt from rigid payment timelines, they still engage in fair trade practices with MSMEs. Exempting exporters from the constraints of Section 43(B) could have far-reaching positive impacts on the Indian economy. It would enable exporters to better manage their finances, maintain global competitiveness, and contribute to economic stability during these uncertain times.
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