Medium and small-sized businesses face an abundance of issues, and a significant part of them are compliance challenges. MSMEs form the backbone of the Indian economy and their total contribution to the country’s GDP is 37.54%. However, it is still lower than what they should be contributing on the basis of their manufacturing and exports. Why is it so?
Such businesses have an unorganized nature and are lacking in adequate resources which causes them to fall back in various departments. Legal compliance and statutory compliance comes under one of these departments. All firms in India, whether big or small, have to follow certain guidelines set by the government but complying with them is a huge challenge for small and medium enterprises.
Failure to comply with these laws can result in huge losses and fines for a company and that is why it gets difficult for SMEs to maintain their profits. Let’s take a look at the reasons why SMEs in India struggle with compliance:
- Lack of legal knowledge
As mentioned above, every business has to follow certain government laws regarding their industry, taxes, environment, etc. There are a large number of such regulations, set by the local, state, and central governments and they are ever-evolving.
Now, SMEs do not have a well-developed HR department to stay abreast with the laws and regulations. An average business owner or manager in these companies cannot be expected to have expertise in legal know-how. They usually get updated about these laws through their peers in the industry or newspapers or other media sources but understanding them properly requires legal competence.
Therefore, due to a lack of proper legal knowledge in these companies, they tend to sometimes overlook certain regulations or fail to accurately comply with them. These compliance issues, in turn, result in huge fines or legal battles, which can be a nightmare for SMEs, given their lack of funds. Hence, without a legal expert guiding them, such firms will continue to flout the compliance norms.
- GST Liability
Since its introduction in India’s economy, GST has eased the way startups do business since it has combined all the levies and taxes of the state and central government into one. However, the effect of GST on Indian businesses is not so one-dimensional.
Despite making it easier for businesses to pay taxes, GST has also escalated the pressure of compliance on small and medium businesses. Filing for GST often causes cash flow problems for SMEs especially, startups because they are also liable to pay taxes on the pending and unrealised invoice bills.
Therefore, GST plays a significant role in causing compliance issues for small businesses.
- Absence of digitisation
The medium and small sized enterprises in India do not work like the ones in developed countries such as the UK and USA, using technology for everything. Here, most of these companies are still reliant on people instead of computers and papers instead of spreadsheets.
Since, in SMEs, most of the records are kept in books rather than digitally, it can cause a lot of problems including loss in ownership, timelines, accountability, and transparency. These problems can often lead to overlooking compliance obligations and therefore, result in paying big fines and penalties to the authorities.
Sometimes, essential compliance documents can be misplaced. If firms do not have digitally scanned copies of these documents stored in their computers, it can lead to compliance issues.
Therefore, without the assistance of technology, maintaining compliance can be an enormous challenge. SMEs in India do not have enough resources to equip themselves with all the necessary technology, so it becomes immensely difficult for them to comply with statutory and legal requirements.
- Budgetary constraints
SMEs in India are mainly businesses operating in trading, services, and manufacturing sectors. Such firms are usually self-funded or take loans from banks. Since they do not have investors and ample amounts of funds, they have to decide carefully on where to spend money.
Most of the budget is allocated to operations such as machinery, stock, interest, wages, electricity, etc. More often than not, the compliance division is the last one to be included in the budgetary provisions, if included at all. The Accounts/Finance team is usually responsible for managing compliance for the firm. This means that the time, energy, and resources dedicated to compliance is insufficient in these companies.
SMEs are provided with an opportunity to raise funds on national stock exchanges through IPO. However, most of the SMEs fail to do so because of their compliance status. Therefore, the problem here is that these companies do not have enough funds for maintaining compliance and they cannot obtain funds because they are not properly compliant.
- Absence of legal experts
Even when companies know all about the statutory and legal requirements they have to comply with, it is not enough. Without a legal expert in the company, it is highly likely to struggle with maintaining compliance.
There are hundreds of compliances and filings to be fulfilled each year in SMEs along with hundreds of acts, licences, and registrations to be dealt with. Thus, SMEs have to deal with a complex web of compliance and without the right expertise, they cannot be expected to be perfect at it.
Now, an SME cannot seek the services of legal experts unless they have spare funds available. Therefore, most such companies try to manage compliance without any legal expertise, resulting in non-compliance and dealing with penalties and legal issues.
How does Workex support SMEs to overcome compliance challenges?
At Workex, we aim to do our best to aid SMEs with the compliance challenges in India. For those of you who are managing a small or medium sized business and struggling with compliance, Workex is the best pocket-friendly solution for you.
Our Workex App provides all staff management solutions in one place including compliance. We have legal experts who strive to help you in avoiding all kinds of compliance challenges for your business. You just have to sit back, work on achieving your business goals, and we are here to take care of the following:
- Statutory Compliance: Workex will take care of Statutory Compliance for your company, including the TDS calculations and ESI files. You will just have to upload the documents to the concerned government and portal and make the required payment.
- Labour Law Compliance: We guarantee 100% Labour Law Compliance for your firm, including Minimum Wage Compliance, Labour Welfare Fund, and Professional Tax Calculation.
The best part of our services is that you get to try them for free for the first three months. Once you are satisfied with what we do, you can further our relationship after three months by paying a minimal fee.
Therefore, all you need to do is install the Workex App and get your company and your employees onboard. After that, we promise to take care of all staff management tasks including attendance, leaves, and overtime management, accurate payroll calculation and processing, employee performance tracking, and statutory and labour law compliance.
So, hurry and install the Workex App from Google Play Store today and get the solutions for all your compliance issues.
SMEs generally tend to face a lot of compliance challenges in India. Those challenges have been detailed above in this article along with their causes. Non-compliance is something that companies should avoid at all costs and that is why SMEs need to seek help for dealing with compliance challenges. So, don’t forget that Workex is here to help.