Companies want government to allow loans on these tax certificates, to help with their cash problems. They also want the government to allow banks to lend at interest rates of 1-2 per cent while keeping these certificates as collateral, or treating then as cheque discounting, people aware of the matter told ET.
Several companies awaiting tax refunds have proposed to the government that it could instead issue certificates for the amount owed, a move that can help businesses get access to liquidity as cash crunch starts hitting operations hard.
They also want the government to allow banks to lend at interest rates of 1-2 per cent while keeping these certificates as collateral, or treating then as cheque discounting, people aware of the matter told ET.
This comes at a time when several large companies are struggling with cash flows and are exploring all avenues to keep borrowing costs in check.
“Many companies are not getting the tax refunds probably because the government too is facing cash crunch. What has been proposed is that instead of actually giving tax refunds, the government can give certificates stating the amount it owes to a company. And banks which are flush with funds should be allowed to take these certificates as collateral and give loans to companies at minimal interest rate, which could be similar to cheque discounting but will resolve working capital problems of many companies, said Dinesh Kanabar, CEO of tax consultancy Dhruva Advisors.
The issue of refunds was raised by several business associations earlier, but the government has maintained that there is no problem on that front.
Many corporate, however, claim that they are not getting any refunds above Rs 1 crore— whether in direct or indirect taxes.
“The CBDT has started issuing tax refunds for smaller amounts below Rs 1 crore, and the delay in refunds could also be due to the fact that tax officers are working from home. However, the government can seriously look at proposal of issuing tax refund encashment certificates, instead of pending refunds in cases where tax assessments are over, say for periods prior to AY 17/18, and also for AY 18/19, as otherwise this will impact cash flows of companies at a time when they are already tackling stress on working capital due to Covid pandemic,” said Hinesh Doshi, managing partner, Hinesh R Doshi and Co LLP.
The amount stuck in the form of refunds could be as high as hundreds of crores for large corporates that are struggling to generate revenues and are dealing with working capital issues due to the Covid-19-led lockdown.
Many companies claim that while they have to collect money from their clients or large consumers, they are unable to do so due to Covid-19 and the financial stress it has caused.This has also impacted the working capital cycle of most companies, which otherwise could be profitable entities, say industry trackers.
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