The issue discussed in this article, uses examples related to EPF (Employees Provident Fund) and PT (Professional Tax). But this could equally apply to all the other regulations that a business has to undertake.
Till a business does not reach a strength of 20 employees, it does not have to pay EPF for its employees. This is a very noble thought intended to help the small companies avoid any extra regulatory burden. But not every noble thought turns out to be beneficial. On the contrary, there are recorded instances wherein concepts that appear to be extremely noble in theory, have caused immense devastation after their practical implementation, the most intuitive example of which could be the ideology of “communism”. The same is very much the case here, and it must be resolved with utmost urgency.
What is the solution?
Stop the regulatory requirement for all companies, including those that reach 20 employees. Needless to debate, this is unfeasible.
Let it be mandatory for all companies to comply with this. This can be applicable after 1 year of the incorporation of any company. But then this would increase the regulatory burden for the small companies. The company will need to register separately for EPF, implement the regulatory compliance’s, hire services of an accountant or a CA to get some part of the compliance done, monitor the compliance and then to top it all be prepared to receive notices for being non-compliant. This is too much of a burden for a small business. Since solution 1 is practically unfeasible, the only option left is to resolve the issues in solution 2, or otherwise we will continue to incentivize the companies to remain small.
So how could the issues in solution 2 be resolved. The government needs to answer the below questions. These are very basic questions, and answering these could resolve the issues in solution 2.
Q1) Why shouldn’t a single PAN registration, act as a registration for everything including EPF, PT and the many other regulations that exist. Shouldn’t a PAN registration of any company, automatically get all these registrations done, even if they are not currently required by the company? There should be no hiccup over here.
Similarly, why should there be separate registrations of PTRC and PTEC, since both are professional taxes. This is an internal classification of the government and must be managed internally. The PAN registration, should act as the registration for all types of Professional Taxes.
It is very noble to ask for a lesser PT rate for female employees. But it is even more noble, to get these lesser rates applicable for everyone, including males. This is because the compliance becomes very simple, even for a non-accountant. If the government thinks that a lower rate of PT by a few rupees per month for female employees will cause companies to hire more female employees, then that government is definitely living in a make believe world. I don’t see any other reason for the rate differential, which causes a disproportionate compliance burden.
Q2) Why should there be a return filing for these compliance’s? IT and GST returns are understandable, but no other returns please. There should be a check for the compliance, only when the beneficiary complains of the same. The business and its directors/owners/partners can be held responsible, if any complain is found to have a basis. But why not begin with the relationship on mutual trust? We can allow complains to be filled even 10 years down the line. Anonymous complains with solid evidence can also be welcomed. This will ensure that most of the companies adhere to the regulations without any need for monitoring.
Q3) Why shouldn’t the process be simple enough, so that the owner of any company, even if he is 10th passed, can comply with it? For example: From an end users prospective, does the implementation of EPF, require anything other that the company owner submitting the deposit amount each month against certain PAN numbers, and the employees linked with these PAN numbers receiving an SMS. Why should this process be even 1% more complex than this?
Q4) Why should any notice be sent to any company, unless it is 100% confirmed that the company deserves to be sent this notice. Only if 3 random government employees, in a faceless review, feel the need with a common consensus, that the relevant company needs to get a notice, then it should receive the notice.
If all these issues are resolved, then I see no reason why even a small company with just 2 employees will remain non-compliant, after 1 year of its registration. Every company considers the “Cost To Company” as the final cost per employee.
If we remove the incentive for any business to stay small, we will unleash the aggression in them to compete with the world. Currently many businesses slow down after reaching about 20 employees and 99 employees. Some consider creating a second company. They are on a lookout for methods to avoid the cumbersome compliance burden. Without resolving this, the government is curtailing the ambitions of many a babies who always dreamed of running as fast as a cheetah. These companies are very capable. By restricting them the unintended damage that is done is immense.