TAX GOVERNANCE IN MSMES: ROLE OF BOARD OVERSIGHT IN PREVENTING REGULATORY NON-COMPLIANCE
AUTHOR – SIDHESWAR JENA, PHD SCHOLAR (LAW), VIVEKANANDA GLOBAL UNIVERSITY, JAIPUR, RAJASTHAN, INDIA
ORCID: HTTPS://ORCID.ORG/0009-0009-0234-5831
RESEARCH GATE: HTTPS://WWW.RESEARCHGATE.NET/PROFILE/SIDHESWAR-JENA
BEST CITATION – SIDHESWAR JENA,TAX GOVERNANCE IN MSMES: ROLE OF BOARD OVERSIGHT IN PREVENTING REGULATORY NON-COMPLIANCE INDIAN JOURNAL OF LEGAL REVIEW (IJLR), 6 (8) OF 2026, PG. 292-310, APIS – 3920 – 0001 & ISSN – 2583-2344. DOI – https://doi.org/10.65393/IJLRV6I830
ABSTRACT
Indias Micro, Small, and Medium Enterprises (MSMEs) constitute the backbone of the national economy, contributing approximately 30% to GDP, 45% of exports, and employing over 110 million people. Despite their economic significance, MSMEs continue to face persistent challenges with tax regulatory compliance particularly under the Goods and Services Tax (GST) regime introduced in 2017. This paper examines the role of board oversight mechanisms in preventing GST compliance failures and other forms of regulatory non-compliance among Indian MSMEs. Grounded in Agency Theory (Jensen & Meckling, 1976) and Stakeholder Theory (Freeman, 1984), the paper undertakes a doctrinal and analytical inquiry into the intersection of corporate governance and tax compliance in the MSME context.[1][2]
The study maps the current GST compliance framework, analyses the personal liability of directors under Section 89 of the Central Goods and Services Tax (CGST) Act, 2017, and interrogates the governance responsibilities imposed on company directors under the Companies Act, 2013. Through a structured analysis of governance failures and compliance risk patterns, the paper identifies critical structural deficits in MSME boards including weak audit infrastructure, the absence of independent directors, and low director-level tax literacy that systemically heighten exposure to regulatory non-compliance. The paper culminates in a proposed Tax Governance Framework tailored for Indian MSMEs, encompassing compliance infrastructure, management-level monitoring, and board-level oversight mechanisms. Policy implications are drawn for regulators, including the Ministry of Corporate Affairs (MCA), the GST Council, and the MSME Ministry, with recommendations toward a formal Tax Governance Code for MSMEs.[3]
Keywords: MSMEs, GST compliance, board oversight, director liability, corporate governance, tax governance, India, CGST Act, Section 89, compliance failures
[1] Jensen, M. C., & Meckling, W. H. (1976). Theory of the firm: Managerial behavior, agency costs and ownership structure. Journal of Financial Economics, 3(4), 305-360. The seminal paper establishing principal-agent theory as the foundation of corporate governance. https://doi.org/10.1016/0304-405X(76)90026-X
[2] Ministry of MSME (2024). Annual Report 2023-24. Government of India. MSMEs contribute ~30% to GDP, ~45% to merchandise exports, and employ over 110 million persons. https://msme.gov.in/sites/default/files/MSME-AR-2023-24-Eng.pdf
[3] Central Goods and Services Tax Act, 2017, No. 12 of 2017. Section 89 establishes joint and several personal liability of directors of private companies for unrecovered GST dues. Available at the official legislative portal: https://www.indiacode.nic.in/bitstream/123456789/2050/1/201712.pdf