SMEs urge President to scrap voluntary winding up fee
View(s):A group of around 50 small and medium scale enterprises have pleaded with President Maithripala Sirisena to repeal clauses in the 2016 budget providing for a fee to wind up a company and amend the exorbitant licensing fee. In a letter, the group urged the President to “amend the 2016 budget proposal to charge an annual license fee from Private Limited Companies as per the suggested plan or replace it with a more viable plan; and repeal the proposal of charging a voluntary winding up fee”.
It said that newly proposed annual levy and the voluntary winding up fee, which is not based on any revenue or profits of such companies, is burden imposed on the company as a compulsory liability payable to the Government and is likely to discourage and even compel them to go out of business. “The duty of the Registrar of companies is to provide a service to the public by supporting for the legal requirements of businesses and supporting them to grow, while charging a reasonable fee to recover the costs.
If the directors of some companies cannot be traced or if there issues on documentation with the Registrar of Companies, it must be deemed as an administrative issue which should be sorted out separately by the relevant authorities,” it said. Here are extracts of the letter: “The Government has proposed to impose an annual license fee of Rs.60,000 on all private companies. Most of the private companies are small businesses and family-owned. Small and Medium Enterprises (SMEs) are the backbone of our economy. Most of the SMEs are private limited companies. Many small private companies are engaged in export of handicrafts, vegetables spices, etc earning valuable foreign currency, yet making a small amount of profit each year.
When it comes to exports in most of the cases, foreign buyers expect the local supplier to be a limited company. Even locally, many of the business activities require the entities to be limited companies. Also, the concept of companies, which safeguards the business from personal liabilities, is accepted to be the best form of business available in the world, which needs sustenance and support. Private limited companies are not entitled to any statutory tax free allowances as in the case of partnerships and individual businesses (currently proposed as Rs. 1.2 million for individuals). Already the fees charged by Registrar of Companies are deemed to be high when compared to other South Asian countries. In this country there are more than 50,000 small companies with at least 400,000 dependent on these organisations.
The proposed license fee remains constant for the companies which make a loss and which make huge profit. It remains the same for those who make Rs. 50,000 annual profit and Rs. 50 million annual profits. This, we consider, to be unfair and impractical. Thus, we would like to propose a better alternative. Companies whose post-tax profit doesn’t exceed Rs.2 million should be exempt from the annual licence while the licence fee for companies above this level should vary based on their taxes. The collecting authority for these levies should be the Department of Inland Revenue instead of Registrar of Companies for it to be practically workable. Our proposals will ensure that the small and medium scale companies are protected and their grievances redressed.
Further, we also wish to bring to Your Excellency’s kind attention regarding the government’s plan to impose a voluntary winding up fee of Rs.50, 000, which seems to be unfair considering the main reason of companies being wound up voluntarily is only when they go out of business and have no other option but to close down. If these levies are enforced, people will have second thoughts as to forming of companies in the future and the viability of continuing their businesses, which may end up with severe blows to our Gross Domestic Production (GDP), imports and exports, and the national economy at large.”