Do’s and Don’ts for MSMEs in the Age of Corona

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.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. 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

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.

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 contact less 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. In addition, it advises and asks all the private and public employers to support their workers and employees. 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