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Decriminalisation proposal can make investors gung-ho about doing business

Feb 2, 2023

States should now take a cue from the FM's budget announcements and accelerate initiatives at their respective levels, say industry observers.

The MSME sector is greatly enthused by Finance Minister Nirmala Sitharaman’s Budget announcements on easing compliances and decriminalising some legal provisions.

During her Budget 2023 speech on February 1, Sitharaman said 39,000 compliances have been reduced and over 3,400 legal provisions decriminalised to enhance the country's ease of doing business (EoDB).

The industry has particularly welcomed the FM’s proposal to decriminalise Section 276A of the Income Tax Act. The section mandates rigorous imprisonment of up to two years if a person, being a liquidator who fails to give notice under subsection (1) of Section 178, or fails to set aside the amount as required by sub-section (3) of the said section or parts with any of the assets of the company or the properties in contravention of the provisions of the section.

Aravind Srivatsan, Tax Leader, Nangia Andersen LLP, says this proposal has been set in force considering that liquidation is now under a special law IBC and the appointment and functioning of the insolvency professional is regulated through a special law.

Section 276A provides for the prosecution of a liquidator for non-compliance of certain provisions. According to a sub-section, the liquidator cannot part with any of the assets of the company until the assessing officer has notified him. The liquidator is required to give a notice of his appointment to the assessing officer within 30 days of the appointment. "Section 276A provides for prosecution of liquidator for non-compliance and also imposes a personal liability on such a liquidator," says Om Rajpurohit, Director (Corporate & International Tax), AMRG & Associates. "Even a small violation of a compliance requirement, such as failing to provide a notice within 30 days of appointment, was overly and excessively criminalised.”

Madan Padaki, the co-founder of the Global Alliance for Mass Entrepreneurship (GAME), says ease of doing business has been a consistent theme in the country's budgets the past few years, and it's nice to note that about 39,000 compliances have been eased. "I think achieving ease of doing business is an ongoing journey. I particularly liked the Vivaad Se Vishwas scheme. By prioritising settlement of disputes, MSMEs’ life will become easier. The voluntary settlement scheme is welcome because no MSME wants to fight it out in court for a long time."

The Jan Vishwas Bill will alleviate deeply ingrained colonial hostility against India’s entrepreneurs and proposes to decriminalise 42 laws, says Rishi Agrawal, CEO and Co-Founder of TeamLease RegTech. "Currently, 2 out of every 5 employer compliances have a provision for jail term going up to 10 years. There are 26,134 such provisions," he says.
The FM had also said that the Permanent Account Number (PAN) would be used as the common identifier for all digital systems of specified government agencies. This will further reduce compliance costs for several MSMEs firms, say observers.

The proposal to use PAN as a common identifier is a significant step towards creating a unique enterprise identity, says Agrawal. This will eliminate the need to have over 20 enterprise identities.

“The proposal to set up a unified filing process will obviate the need for separate submission of the same information to multiple agencies, reducing inefficiency and duplication of effort.” The proposal to make DigiLocker include business entities for secure document storage and sharing will “reduce thousands of sheets of printed paper while seeking licences and registrations, paving the way for digital compliance," says the CEO of TeamLease RegTech.

What more needs to be done?
Padaki says there's a lot of ease of doing business regulations and documentation at the state level that needs to be streamlined. He expresses hope that states will proactively take a cue from the FM's announcements and accelerate EoDB initiatives at their respective levels.

Maintaining that becoming a part of the formal economy helps SMEs to access credit to grow their business, he adds, "We've seen a direct correlation between formalisation and the growth of enterprises. The FM's latest measures — where the government is telling entrepreneurs they will not be penalised for conducting business — are all encouraging moves because that's the reason why a lot of entrepreneurs choose to remain informal."

Echoing similar views, Agarwal of Teamlease says India’s employer compliance ecosystem goes through at least 5,000 regulatory changes every year. These are published on at least 2,233 websites of the Union, state and local governments. But there is no provision to search, sort or to subscribe for updates from here. "I expected that the budget would have a provision for an online portal that publishes all the regulatory updates in one place.”
Agarwal says as India grows, poor regulatory capacity will be a huge binding constraint. There are chances of delays and opportunities for corruption while doing periodic inspections & certifications, issuing licences & registrations and other permissions. “The government needs to systematically come out with more measures on this front,” he adds.

[The Economic Times]

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