New annual company fees in 2016 Budget: Are they legal?
The government has begun enforcing a new annual company registration fee (ARL) of a minimum of Rs. 60,000 whose payment is due on or before July 1 but without the required law, raising questions as to whether this is a legal fee. The new fee was introduced in the 2016 budget presented in November last year but like many proposals the relevant statute has not been enacted and gazette notification issued so far.
According to the budget proposal, the fee payable by private companies is Rs. 60,000, listed companies – Rs. 500,000 and foreign companies (other than liaison offices) – Rs. 100,000.
The ARL came into force from 1st January 2016 and was due for payment by March 31 but the due date has been extended to June 30 in accordance with directives of the Secretary of the Ministry of Industry and Commerce, and the Secretary of the Ministry of Finance, officials said.
The Department of the Registrar of Companies (ROC) had been directly informed by the Deputy Secretary to the Treasury, via Fiscal Policy Circular No. 01/2015 (11), dated 15 February 2016, to “carry out all the revenue accounting activities” pertaining to the ARL, Registrar General of Companies D.N.R. Siriwardena told the Business Times.
He said that the department has to follow directives issued by the Finance Ministry and the Ministry of Industry and Commerce although the relevant gazette notification is yet to be issued. The department has to abide by the circular issued by the Treasury, he pointed out. A few companies have already paid the ARL of Rs.60,000 while the majority are yet to make the payment, he said, adding that the Finance Minister is considering a revision in the ARL following representations made by several business enterprises. Small and Medium scale Enterprises (SMEs) and micro business are being caught up in a whirlwind with the imposition of the costly new ARL, heads of several SME’s told Business Times.
Small and medium sized enterprises (SMEs), specifically newly set up businesses, will find it difficult to pay the ARL of Rs. 60,000, they complained. Another discouraging factor is, at the time of company’s voluntary liquidation Rs.250,000 will be charged on liquidation.
These companies have to maintain records of their proceedings, attend to statutory filings, have a company secretary and an auditor on their payroll, while also meeting a considerable marketing budget. All these are money consuming, they pointed out adding that many of the country’s SMEs will find it difficult pay the new ARL proposed.
There are currently no consequences for non-payment or delayed payment of the ARL by registered companies. However, once the ARL is enshrined in law, there will be legal consequences imposed for evasion of payment. Businessmen and economic experts questioned, as to whether it is ethical or legal for the ARL to be imposed by the ROC, pending relevant statute being passed to such effect. Leaving aside the quoted and other companies, Rs. 60,000 is a high fee for a small company with an annual turnover of Rs.100,000, and also discouraging the SME sector, veteran tax consultant N.R.Gajendran told the Business Times.
Another unsatisfactory situation is that the fees are payable even if a company is not functioning, he said adding that there are about 30,000 companies which are non-operative as per the ROC. This is a very serious situation as some of these companies are confined only to the name board and visiting cards of its chairmen and directors to gain unwarranted benefits both here and overseas, he pointed out. Imposing of high ARL will curtail such illicit practices, he said adding that the companies should generate profits and income otherwise there is no point in maintaining business enterprises which cannot pay the ARL. In a letter to the Prime Minister, a retired accountant Ms. H.T. Mundy noted that this fee will have a severe impact for start ups and small businesses and Rs. 5,000 per month (or Rs.60,000 per year) is often all that a small business earns, particularly in the early years.