With the significant
contribution to Indian Economy in respect of employment generation, exports and
Gross Domestic Product (GDP), MSMEs play a crucial role in our country’s overall
economic growth.[1]Given
the indispensable role of MSMEs, their survival through the coronavirus crisis
is enormously significant. While the outlook for MSMEs is grim, there are still
steps they can take to safeguard themselves from complete devastation.
Revenue generation has
ground to a halt under the complete lockdown instituted globally to counter the
spread of COVID-19. With a smaller capital base to rely upon and less fluidity
than larger businesses, MSMEs have been hit hard by this shutdown. Many are
projected to close down completely before the crisis is resolved. Those that
survive will have shrunk significantly and face fewer opportunities to grow in
the future.
MSMEs that close during
this time are not free from the costs of doing business. Both social and
economic pressure works against MSMEs, forcing them to pay salary or wages to
their workers along with the burden of rent and several other fixed costs.
While the big businesses have the market power and reserves to blunt or absorb
such pressures, MSMEs have neither. If the crisis lasts long enough, MSMEs
won’t be able to absorb these costs while operations are shut down – and both lay-offs
and closure will be compelling options.
However, MSMEs aren’t
in this alone. Keeping in mind the impact of the coronavirus outbreak, The
Union Finance & Corporate Affairs Minister, Nirmala Sitharaman, announced several
relief measures, chiefly on statutory and regulatory affairs related to several
sectors.[2]
Further, to help industries deal effectively with the losses and the impact of the
outbreak of this brutal virus, an economic relief package is expected soon.
Much-needed relief measures were introduced to lessen the compliance burdens on
companies and citizens.
Keeping in mind the
survival of Micro, Small and Medium Enterprises amidst the coronavirus
outbreak, we have provided a list of some Do’s and Don’ts to keep your business
safe through the crisis period.
Do’s
1. Take advantage of the relief
measures taken by the Government of India[3]
Threshold
Default
The threshold
default has been raised from the existing threshold of Rs. 1 lakh to Rs. 1
crore. This will prevent the set off of insolvency proceedings against MSMEs.
Late
Filing
Additional fees shall
not be charged for late filing during a moratorium period from 01st
April to 30th September 2020, with respect to any return, document,
statement etc., needed to be filed in the MCA-21 Registry, regardless of its
due date. This will not only result in the reduction of compliance burden,
inclusive of the financial burden of companies / LLPs at large, but enable
long-standing non-compliant companies / LLPs to begin again as well.
GST/Indirect
Tax
GST
Returns can be filed by for March – May by the last week of June for those who
are having aggregate annual turnover of less than the amount of Rs. 5 crore.No Late
Fee, Interest, or Penalty shall be charged on the same.
An
extension has been given till the last week of June 2020 for filing GST annual
returns of the Financial Year 2018-19, which is due on 31st March
2020.
The
last date has been extended for income tax returns for the Financial Year
2018-19 from 31st March, 2020 to 30th June, 2020.
2. Emergency Credit Lines
‘Following
the footsteps of State Bank of India other state-run lenders Bank of India,
Union Bank of India, Uco Bank and Indian Bank too announced emergency credit
lines for their existing MSME borrowers.’[4]
3. Applicability
Instead
of from 2019-2020, the Applicability of Companies (Auditor’s Report) Order,
2020 shall be applicable from the financial year 2019-20.
4. Newly Incorporated
Companies
Earlier,
within six months of incorporation the newly incorporated companies were needed
to file a declaration for the Commencement of Business. Additional time period
of six more months shall be permitted for newly incorporated companies to file
the same.
5. Stay Informed and Updated
Stay
updated with latest government policies and several relief measures regarding
MSMEs as well as guidance from the government in relation to coronavirus
pandemic. MSMEs should stay in regular contact with State and local offices.
The government is also considering late repayment of loans by the MSMEs to
support the sector due to the coronavirus outbreak. The government is
considering relief measures such as allowing late repayment of loans by the
micro, small and medium enterprises to support the sector amid the coronavirus
outbreak
6. Cash Flow Budget
A
cash flow budget must be prepared wherein fixed versus variable costs are
listed. It is essential in such times to create a list of priorities with
respect to the costs and manage paying it accordingly.[5]
7. Offer Goods and
Services Online
During
the coronavirus Pandemic, revenue can also be generated in certain sectors by
offering goods and services online. For Instance, in the times of mandatory
social distancing, law firms can take part in video conferencing and have
meetings virtually with the existing as well as new clients. They can offer
required legal advice and offer virtual consultations through video
conferencing. In such times, it has become necessary to adapt and get used to
video conferencing as we have no idea how long this coronavirus crisis will
continue.
Even
certain food delivery companies are offering no-contact or contactless food
delivery in response to coronavirus concerns. Fitness centers, dance studios
can offer lessons through video-conferencing or even by uploading videos on a
platform.
For
various other businesses depending on the type, digital goods and services can
be offered online. For instance, coaching sessions can be made available
online, one’s expertise or knowledge can be sold in the form of training
courses. In Healthcare sectors, online consultation services can be setup after
fulfilling the legal compliances that come with it.
8. Work From Home
Revenue
should be generated by practicing work from home, most of the workers of MSMEs
and even big companies are already working from home due to the restrictions on
human movement. Although, work from home has its own unique as well as
tremendous challenges for MSMEs.
9.
Review All Contract and
Agreements
All
existing contracts and agreements should be reviewed by professional to ensure
minimal liability. The operation of any company involves entering into several
contractual relationships and agreements. Due to the current crisis, companies
are unable to fulfill their obligations due to which parties have begun initiation
dispute proceedings. It is important to understand where the contract should be
re-negotiated, how to get out of a contract that has become impossible to
perform and the drafting of new agreements to prevent further disputes. There
are also several compliances attached to each contract which kick-in only when
there is an emergency situation or if the parties are incapable of performing
the contract.
Dont’s
1. Lay off Employees
The
Labour Ministry has issued an advisory that in this critical time of the
coronavirus outbreak , employers should not resort to layoffs or cut salaries.[6] In
addition, it advises and asks all the private and public employers to support
their workers and employees.[7]
This may be the advance notice of some form of punitive action taken for any
termination – such as tax penalties, wage seizure, fines, etc.
2. Disobey Legal
Obligations
Disobeying
the legal obligations/regulations of companies around coronavirus must not be
done. Criminal penalties apply to those violating regulations and advisory
notices from the government – including jail time.
Originally published on www.kpalegal.com on 14th April 2020
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