MSMEs to be defined by its number of workers

ZGM DAILY

2018-04-13 08:32 GMT+8

Mongolia Sustainable Development Vision 2030 states to reduce unemployment rate to 6 percent and grow economic activity of the working age population to 66 percent. Furthermore, financing of over MNT 100 billion has been allocated annually for developing small and medium enterprises (SME) in 2016-2020. As of today, a total of 12 major foreign projects are being implemented for SMEs; however, the implementation of these projects will require another leverage, which is the amendments to Law on SMEs.

The draft amendments, which was prepared by the Head of SME Development subcommittee Ganbaatar Jambal, will be discussed during the Parliament session. The key change in the amendments is the specification of SME categories.

The current Law on SMEs does not determine the specific categories for micro, small and medium enterprises (MSMEs). The draft amendments impose MSMEs to be defined by its sales revenue, number of workers and certain indicators, such as field of operations and subsidiaries. Accordingly, entities with up to 199 workers and less than MNT 1.5 billion annual income will considered as MSME with the upcoming change.

In specific, MSMEs will be divided into three categories. An entity with up to 9 workers and annual income of MNT 250 million will be considered a micro enterprise, while small enterprise will define an entity with 10-50 workers and less than MNT 250-500 million annual revenue. Medium enterprise will define an industry with 50-200 workers and annual revenue of MNT 0.5-2.5 billion. Accordingly, wholesale or service companies will not be considered as MSME.

According to policy-makers, the current Law on SMEs provides more credit accessibility for smaller firms; thus, limiting their aspiration for expansion. Therefore, credit amount for MSMEs will increase with operational upgrade from micro to small and small to medium with the amendments. Loans for micro and small industries will be financed from the Fund for MSMEs, while medium enterprises will be financed through commercial banks. Another key change in the draft is a tax discount. The upcoming tax revision states to deduct 1 percent Corporate Income Tax from entities with sales revenue of less than MNT 50 million. The draft amendments to Law on SMEs sets Corporate Income Tax of all MSMEs to 1 percent. In other words, corporate tax for an industry with less than 200 workers will be 1 percent regardless of their income.

As of today, MSMEs account for 96 percent of total private entities. This includes 67.6 thousand entities, which employ over 800 thousand workers. Experts expect the amendments to the Law on SMEs will provide favorable conditions for business environment.

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