6 key issues MSMEs must tackle to ensure legal, administrative compliances

Updated: November 6, 2019 2:50:40 PM

Business and commerce entail an eclectic interplay of many complex ecosystems which are, many times at conflict with each other. The need is to have a framework that is robust yet flexible policy.

 

Having a structure for a business is a must for making it successful.
  • By Akshat Singhal

MSMEs form the backbone of Indian economy. They contribute almost 29 per cent towards the country’s GDP and are one of the largest employers in India. The livelihoods of 11.1 crore people depend on this sector. Towards realizing the government’s mission of a $5 trillion economy by 2024, the GDP contribution of this sector needs to go up to 50 per cent. This is not an easy task, for the path is riddled with obstacles that are organizational and systemic. Each problem requires resources and MSMEs by their very nature are always short of resources. And they are best deployed solving business problems rather than negotiating with compliance and legalities. These have to be minimised. There are some that can be tackled at the organization level and others that require policy interventions.

Areas Businesses Should Tackle

Organizational structure: Having a structure for a business is a must for making it successful. Many businesses either due to lack of knowledge, bureaucratic apprehension or additional compliance burden do not get their businesses registered. As per law as well, businesses are not required to get themselves registered. However, registration would help by opening up business opportunities from state and central enterprises, easy access to finance or working capital, higher tax rebates to name a few.

Delayed payments: Every or almost every organization faces the problem of delayed realisation of their bills. This leads to excessive financial constraints which is one of the key reasons for their successive failure. However, such companies should be aware that as per the MSME Act 2006, buyers are liable to clear their invoices within 45 days lest they are being subjected to heavy penalties. If the buyer fails to make payment of the amount to the supplier, he shall be liable to pay compound interest with monthly interest to the supplier on the amount from the appointed day or, on the date agreed on, at three times the bank rate, as notified by the Reserve Bank of India. In case of dispute with regards to any amount due, a reference shall be made to the Micro and Small Enterprises Facilitation Council, constituted by the respective State Government

Tax liability: The introduction of GST, on the one hand, has helped in enhancing the ease of business for Indian startups by bringing all state and central level levies and taxes under one roof but on the other, it has also increased the already high compliance pressure on MSMEs. GST filings also lead to cash flow issues for startups as they are made to pay taxes on the pending and unrealised invoice bills as well. Many businesses have now started to issue proforma invoices thus deferring their GST liability only after their money is realised.

Also read: SMEs will make digital payments only if this one worry is solved | PayPal interview

Issues Needing Government Intervention

Access to right information: Another major issue is the lack of information regarding the documentation and other requirements for obtaining licenses and registrations. Most of the government portals and websites provide vague and dated information. New amendments are rarely notified in the official gazette which in turn leads to a lot of chaos and confusion. A centralized online system of licensing with the right use of technology can easily help in resolving this issue. 

Simplifying patent registration laws: India still lacks behind in R&D as compared to many other developing nations. Similarly, the long-drawn process of registration of patents and lack of incentives and monetary benefits for research and development is another bone of contention, which is another reason why many entrepreneurs prefer to be domiciled abroad. 

Unified labour code: The manufacturing and factory establishments in India are governed by a large number of labour legislations. Most of the requirements in these acts are overlapping which makes it very difficult for the companies to cope up with each legal requirement every month. Also, many provisions in these legislations are dated and are not in sync with the new technological advancements and business models. The need of the hour is to compile these laws into a single labour code dealing with all major verticals like wages, social security, industrial safety and welfare, and industrial relations etc.

Business and commerce entail an eclectic interplay of many complex ecosystems which are, many times at conflict with each other. The need is to have a framework that is robust yet flexible policy. There is no perfect solution but the one that is close it evolves as the businesses do, affording a conducive environment for sustainable growth. These contradictions and complexities may not always be bad for many a time they lead to solutions that are not just outstanding but are powerful enough to create new vistas and possibilities for economic growth and the creation of a prosperous nation.

(Akshat Singhal is the founder & CEO at Legistify. Views are the author’s own.)

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