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Tuesday, May 17, 2022

Fixing enterprise plumbing

A single number for a company — the unique enterprise number — is a welcome ease-of-doing-business intervention.

Written by Manish Sabharwal |
Updated: February 10, 2016 12:02:18 am
Narendra Modi, startup india, startup india mission, startup modi, startup standup, india startups, Startup India India, Start up india, india, technology, entrepreneur, india investments, private investment, Indian express A unique identifier is crucial infrastructure for the digital economy and improving the ease of doing business. (Illustration by: C R Sasikumar)

Start-up policies and ease-of-doing-business interventions are more inclusive than subsidies because they help the struggling, striving, and successful. The government’s decision to move to a single number for enterprises by adopting the permanent account number (PAN) of the income tax department is a wonderful gift to entrepreneurs. It ends the regulatory cholesterol of multiple numbers that include the corporate identity number (unique 21 digits), taxpayer identification number for commercial taxes (unique 11 digits), service tax number (15-digit alphanumeric), PAN (10-digit alphanumeric), Central excise (PAN plus two characters), provident fund number (11-digit alphanumeric), profession tax registration certificate (nine-digit numeric), profession tax enrolment certificate (nine-digit numeric), income tax deduction and calculation number (10-digit alphanumeric), ESIC number (17-digit numeric), labour department registration (13-digit state-specific alphanumeric), importer exporter code (10-digit numeric), shops and establishments registration number (20 plus-digit alphanumeric), contract labour registration (15 plus-digit alphanumeric), labour welfare board (five-digit numeric), higher court case number (12-digit alphanumeric), etc.

Painfully, the above list does not include numbers currently issued under state or industry legislation like the Beedi and Cigar Workers Act, 1966, Boilers Act, 1923, Building and Construction Workers Act, 1996, Cotton Ginning and Pressing Factories Act, 1925, Karnataka Dangerous Machines Act, 1991, Environment Protection Rules, 1986, Hazardous Waste Rules, 1989, Interstate Migrant Workers Act, 1979, Motor Transport Workers Act, 1961, Oil Mines Regulation Act, 1984, Plantation Labour Act, 1951, Bombay Police Act, 1951, Bombay Prohibition Act, 1949, Bombay Foreign Liquor Rules, 1953, excise licence, Explosives Act, 1884, Gas Cylinder Rules, 2004, Food Safety and Standards Act, 2006, Food Safety and Standards Regulations, 2011, Indian Boilers Act, 1923, Indian Boiler Regulations, 1950, Maharashtra Private Security Guards Act, 1981, Maharashtra Private Security Guards Scheme, 2002, Petroleum Act, 1934, Petroleum Rules, 2002, Factories Act ,1848. It’s scary that even this list is not comprehensive.

The case for a unique enterprise number (UEN) is strong. The multiple numbers for companies, partnerships, trusts, cooperative societies, sole proprietorships, etc, issued today sabotage national recognition and referencing. A unique identifier is crucial infrastructure for the digital economy and improving the ease of doing business. The UEN will enable government entities (issuing import licences, building permits, EPFO, ESI, etc) to render services with a complete picture of the organisation. And linking the identity of office bearers of these organisations to a common system that allows electronic authentication will reduce paperwork, enable the move to “online and deadline” and reverse over-regulation and under-supervision. Most importantly, a UEN will enable enforcement and regulation to move away from feet-on-street harassing entrepreneurs to a “big data” approach of analytics. Evidence suggests that enterprises will play by the rules if compliance is convenient and evasion is difficult.

Adopting the PAN as the UEN rather than creating a new series is logical because it is already used for income, customs, excise and service tax. The Nandan Nilekani Committee for GST technology implementation got all states to agree that the PAN would be the ID for sales tax/ VAT and, subsequently, for the GST. The empowered committee of state finance ministers for GST would surely see the logic for profession tax. Adopting the PAN has many advantages — it already allows all kinds of entities to obtain a number, the technology is tested and in place, it allows for the Aadhaar linking of office bearers, it is already used by a large number of entities, it will not require any change in banking or tax systems, it will not require a new law to govern the issuing authority, and it does not require a new authority to host the UEN and run the system. Unlike Aadhaar, where biometric de-duplication was required, setting up a UEN framework is a technologically simple system that can be managed centrally and easily.

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There are some political economy and turf questions that will need ironing out — the PAN is “owned” by the finance ministry/ Central Board of Direct Taxes, so other Central entities and state governments may be hesitant to adopt it. But it is not difficult to design an operating structure for the UEN with broad acceptability; putting PAN issuance under a department along with Aadhaar in the UIDAI to make it neutral is one option. The government must immediately set dates for various phases over the next 24 months when all other numbers will be replaced by the UEN. Nobody should be allowed to sabotage or delay this simple but high-impact intervention.

India is poor because too many of our 63 million enterprises are informal (only 1.5 million pay mandatory employer pensions and healthcare), small (85 per cent of manufacturing is done in entities with less than 50 employees), unproductive (there is a 22-times difference in productivity between manufacturing enterprises at the 90th and 10th percentile by size), unincorporated (only one million of them have limited liability), and thinly capitalised (only 18,000 companies have paid-up capital of more than Rs 10 crore).

This painful enterprise stack is because India is a hostile habitat for productivity and entrepreneurs. The renewed focus on productivity assassins of the supply side (health, schools, skills and higher education) must be complemented by broad and deep surgery to regulate cholesterol that makes life for job creators and investors miserable.

Small changes matter. A large global investor, worried about the ease of getting his visa online, recently called me to check if he had been fooled by a phishing website. And it has been wonderful to hear global investors on a recent roadshow starting to think of India as a separate
asset class, with brighter prospects and higher economic complexity than other commodity-driven emerging economies. New company incorporations grew by 7.3 per cent in 2015 after a 22.6 per cent decline in 2014; we must build on this momentum by making India an easy place to do business for entrepreneurs, investors, multinationals and manufacturing. The UEN is a smashing start.

The writer is chairman, Teamlease Services

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