May 2019

Coping with Compliances

Raman Jokhakar
Editor

Laws are meant to serve a number of purposes: Establishing standards, maintaining order, resolving disputes, and protecting liberties and rights, etc. Indian laws often fail to achieve these purposes and even produce opposite outcomes! Often Rule of Law does not bring intended results when laws are not equally applicable (say between State and citizens or amongst groups of people), not equally enforced, not adjudicated fairly and lacks a timely and cost-effective justice delivery system. In the Indian context people avoid or dodge laws due to many reasons such as:

 

a.  Following rules does not necessarily lead to intended / expected outcomes (low standard of service to a tax-payer or bad quality of service delivery from State or administrative underperformance).

b. Laws are larger than the purpose they serve (disproportionate compliance, corruption, red tape, treating the tax-payer as evader, arbitrariness, lack of accountability).

c.  Justice delivery and adjudication process is so convoluted and takes so much longer than it should even for routine matters.

 

The above can only be remedied by government empathy and innovation so that citizens are encouraged to abide by the spirit of the law and don’t get worn out by burden of doing business which is more akin to doing compliances. It is said: Tax evasion is reprehensible; it is social injustice by the evader to his fellow citizens. Arbitrary or excessive taxation is equally reprehensible; it is social injustice by the government to the people. In today’s context excessive, reactive, and irrelevant laws constitute reprehensible acts of social injustice by government on its own people. Constant tweaking, amending, notifying, not notifying for months and years1, changing schema, dysfunctional compliance portals (take GST and PT) and the list is unending.

 

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1   In 643 days of GST (known as Good and Simple Tax) at the beginning of April 2019: 1 Amendment Act, 31 amendments in CGST Rules, 364 Notifications, 224 Circulars and Orders. That is 620 changes in CGST and IGST alone or nearly 1 per day and SGST changes are disregarded.

 

 

Let’s take the example of Digital Signatures Certificates (DSC) in case of non-resident directors. They require Apostille / Notary every two years. Add KYC process by MCA to this (aka duplication). Such authentication costs Rs. 8,000 to 14,000 per document in many countries. While authentication is a valid aim, its feasibility (cost, benefit, time, risk) in a given context (say a non-operational or non-public interest entity) requires balance. On top of this, banks ask for their own KYC. That is not all. New changes require a video of the person (perhaps to check he is alive) before he can get a DSC! Additionally, MCA has brought out new forms that necessitate giving a photograph of the Director and latitude and longitude to keep the company ‘active’! Moreover, the requirement for a full-time company secretary is a cost burden due to a threshold / basis that is not reflective of the actual need for having one. In a connected world, numerous disconnected laws translate into a barrage of futile compliances that give a false sense of conformity especially for mid-sized businesses.

 

Take obsolete laws! Inter-state change of registered office requires that creditors give NOC. In a recent case, creditors gave their no objection on email through scanned letters. After uploading them, the MCA asked for proof of calling for the confirmations. Well, there was no choice but to post those letters to creditors, enrich the postal department and upload proof of sending by ‘Registered AD’. And yes that ‘compliance’ met the legal requirements and the registered office shifting got approved.

 

Every form and procedure necessitates periodic evaluation by an independent questioning group and a survey from users – to ensure that these forms and procedures remain effective, smooth, and meaningful. This is especially necessary for a compliance averse society like ours. New compliances coming out every few months seem like surgical strike – but on the wrong side – numbing the already low and overburdened base.

 

 

Raman Jokhakar

Editor

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