Recently a Law Maker confessed to not being
aware of applicable rules. This is a
familiar territory for an entrepreneur. The law maker might just get away with
the explanation but we cannot. Therefore it is imperative that every
entrepreneur takes time out to study and to keep abreast of the changes in laws
and rules.
This is easier said than done given the
already long list of pending decisions, meeting with suppliers, customers etc.
Where is the time to study law. I remember when we set up shop we were given a
tax holiday for five years. However while every newspaper or minister harped on
this point to attract investors not one mentioned the fine print. One had to
employ, ten employees to be eligible, just starting was not enough. Some smart
CA’s advised their clients to show 10 employees when t hey realized this gap.
A couple of years later as they are wont to
do, the ESIC inspectors looked at this list of ten employees and asked the
entrepreneurs to pay ESCIS from the day ten employees were shown on the books.
This had to be paid with interest and penalty since an establishment with 10
employees is liable to be covered under ESIC. Today as per the updated rules,
10 employees attracts the provisions of Provident Fund Act.
CA’s are not concerned with ESIC and PF and
hence overlooked this point when advising clients purely from the Income tax
aspect. The hot potato is back in the lap of the entrepreneur. He has to know
all the laws, not knowing does not given him any respite.
The simplest way but the most difficult way
is to take a crash course on all applicable laws. It is also impractical. The
best way is to be “networked”. When you are part of an industry group, they will most likely send you copies
of gazette notifications, they will send you case studies which have been
decided in tribunals, courts etc. Also in meetings you will overhear or discuss
situations or transgressions pointed out by inspectors. Based on these inputs
you will have to go back to your own unit and check compliance.
I came across a situation where the
industry association was reluctant to appraise its members of a new law. The 2011 Union budget had imposed a 1% tax on
an activity. A superintendent of Central Excise charged with the responsibility
of collecting this tax, tried to meet a few heads of companies affected by the
tax, based in his jurisdiction. His attempt was greeted with suspicion. He was
told that the companies CA had said this was not applicable or that
representations had been made to reverse the decision. Some questioned him as
to how the tax would be collected since customers had already signed Purchase
orders which did not reflect this tax? Good question except that it has to be
addressed to the customer and not the enforcing officer, he does not make the
law, just enforces it.
Ideally a proactive industry body would
have implemented a two pronged strategy. On one hand they would have applied to
the government for a review or rollback. On the other hand, they should have
begun to train members to handle the new tax. On what basis will the new tax be
calculated? What kind of returns have to be submitted and when. What happens to
the running bills already paid before March 2011 and the product will be billed
after March 11? How are customers to be approached to claim this tax if is not
mentioned in Purchase Order.
They can invite tax experts, Department
officials and members can ask question so that their doubts get cleared. By doing this the association will keep its
members abreast of the changes. Any other reaction especially ignoring the
change expecting it to go away is akin to the proverbial “Ostrich Head in the
sand approach”.
Very often we see technically qualified and
sound entrepreneurs fail, because they lacked commercial skills and did not
think it was important enough to pay attention to those factors. For example,
while the product is technically sound, the accounting is horrible and
therefore there is no control over working capital. This leads to the product and
entrepreneurs downfall. A simple matter of over invoicing to claim more subsidy
is akin to making a hole in your own boat. This is a factor many entrepreneurs
who have no commercial background fail to realize. Go to any industrial estate
and you will see this hard reality, units which over invoiced to claim subsidy
are closed, none stood the test of time.
Jack of all trades could be applied to an
entrepreneur, and if not the master, he must know master in all trades so that
he can run his business well. Knowledge
has always been the key, today more than ever this remains true, except that
the knowledge bank changes fast and one has to keep up.
Blaise
Suggested reading material: GCCI came up
with a list of all acts and a reading of them would make one realize which
maybe applicable to a particular business.
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