As the Narendra Modi-led BJP government is in command, the business owners especially tech firms are keeping high hopes from upcoming Union Budget 2015-16 which is due in this month. Finance Minister Arun Jaitley has already asked all the ministries to submit their recommendations on the same.
Earlier in last year, Prime Minister Narendra Modi had announced his ambitious Digital India campaign. Post which startups and established companies in the technology and ecommerce space are excited. They all believe Budget 2015 will be the start of a new era of higher growth. However, for this finance minister has to take some concrete steps towards improving the ease of doing business in India.
Before we move further, Let’s point out the challenges faced by startups community and small businesses in India.
Multi-window clearance system – Venturing out your own business is not less than a war in India. You need to run around far too many offices and places for various clearances and approvals. Now, it’s high time to have single window system where all clearances can be obtained.
Taxation Issues – Different taxes like Minimum Alternate Tax (MAT), excise, service, octroi and VAT are the biggest barriers for smaller firms and startups. There are lot of complexities involved in taxation system for startups.
Ease of doing business – When it comes to doing business in India, entrepreneurs always take it as toughest job. According to the recent market reports, India has slipped further on the World Bank’s ‘Ease of Doing Business’ index, at 142 among 189 countries as on June 1 from 134 last year. The regulations related to running a business are really unfavorable for startups and needs an immediate overhaul.
Funding concerns – The present regime of Angel tax has proved to be bad idea, as a number of startups have shifted base to countries like Singapore, the US and the UK. There is an urgent need to tweak Section 56 of the Income Tax Act to keep startups and the investing community out of this law. Tax exemption for seed and angel investors will be a huge boost for the startup ecosystem.
So before the government announces its plans in regard to the startup, SMBs, SMEs and angel investment in the country, we put down few of the important recommendations made by the different bodies, startups, investors etc.
There are various associations and trade bodies who have recommended different steps for startup ecosystem to promote entrepreneurship among young business leaders. Let’s have a look into what they have brought on the table.
Internet and Mobile Association of India
The Internet and Mobile Association of India (IAMAI) expects the upcoming Union Budget 2015 to promote digital entrepreneurship. It has recommended –
- Incentive in the form of tax holiday
- Budget should focus on creating job opportunities
- tax treatment must be given to investors to attract investments
- Address VAT and other local taxation issues for ecommerce firms
National Association of Software and Services Companies
As part of the recommendations, NASSCOM highlights necessary aspects that can promote a healthy growth oriented business environment for existing players, innovation driven startups and SMEs.
Some of the salient recommendations by NASSCOM are:
- Incentives for technology startups and SMEs
- Addressing regulatory and tax challenges for tech startups and SMEs
- To encourage growth of ecommerce, taxation on digital transactions should be in the least, at par with the physical world, if not reduced to facilitate adoption and migration to technology enabled platforms.
- Policy revisions / clarifications for expansion of the Industry
Assocham
- Pitched for a non-adversarial tax regime,
- Retrospective amendment should be withdrawn
- Reduction in Corporate Tax and MAT (Minimum Alternate Tax) rates to 25 per cent
FICCI Recommendations
- A rebated income-tax regime for small startup businesses called STArtup Rebated Tax
- Incentivize investments by angel or venture capital investors
- More friendly regulations for early stage firms
Let’s check it out what startups have to say about Union Budget 2015-16 and their expectations
Sanjay Sethi, CEO & Co-founder, ShopClues
Our primary expectation is more tax clarifications for the ecommerce industry in the country.
- Looking forward to the implementation of the Goods and Services Tax (GST)
- If VAT and sales tax is abolished for online retailers, it will be a real shot in the arm for ecommerce as a whole
- Tax incentives to promote investment in technology and logistics and up the ante for the sector in India
- FDI in retail will be a welcome move for the ecommerce industry as a whole.
- More emphasis on the Digital Literacy Programme
Sitakanta Ray, Co-founder, MySmartPrice
Budget 2015 promises to be of great interest to the emerging sectors of India, especially the Indian ecommerce industry. Though the last year’s budget didn’t deliver on the hopes of bringing FDI into online retail, certain steps have been taken in the right direction to instill a sanguine attitude amongst the industry.
- Greater emphasis is laid on helping fledgling startups grow.
- Relaxation of corporate tax for startups
- Provisions to increase venture capital investments from abroad will be great measures to help grow young startups
- Tax Holiday to Digital Startups similar to that received by Telecom Sector
- Resolution to the VAT and State taxation issues
R Narayan, Founder & CEO of Power2SME
Startups have become the powerhouse of India’s GDP growth rate. It thus, becomes imperative for the government to constantly develop an environment where in these micro units continue to flourish. Easier access to credit, simplified regulatory framework, relaxation on the service and capital gain tax policies, incentives/subsidies to support smooth operations are few issues that need to be addressed in the 2015 budget. The emergence of SMEs in the SEZs of the country is another point to be looked at. The government should support the set-up base of the SMEs in these zones as the manufacturing capabilities of these small enterprises has a direct bearing on the growth of larger enterprises. With the coming in of the ‘Make in India’ and ‘Digital India’ campaigns, not only will the startup community get a boost but also has the potential to lead the success story of India. Thus, we are highly positive on the coming budget considering the way government is working towards pushing the micro, small and medium enterprises.
Rohan Bhargava – Co-Founder, CashKaro.com
- Government needs to pave the way for global investors to offer their knowledge to Indian startups
- Tax exemption for seed and angel investors will be a huge boost for the startup ecosystem
- Boost connectivity – Creating digital infrastructure should be prime agenda in the upcoming budget
Sumit Jain, CEO and Co-Founder at CommonFloor.com
India has always seen great ideas and initiatives; however, this time it will be the ‘execution’ that will make a difference. One of the most pressing issue that daunts the real estate industry today is the absence of unified body in the Centre, which can streamline, regulate plans/ policies and manage large infra projects rolled-out across the country. In addition, in a country like ours, details pertaining to the timeline of the projects should be addressed with utmost seriousness.
- Easing real estate investment trusts (REITs) norms and making it investor- friendly by reworking the provision of three-year lock-in period and Minimum Alternate Tax (MAT) will benefit the sector largely.
- Single-window clearance and clarity on Real Estate Regulatory Bill
- Goods and Service Tax (GST) must also become a reality
- An apex body for addressing the concerns of real estate sector
- Industry status to real estate sector
Another online real estate portal, PropTiger.com founder Dhruv Agarwala also shares similar expectations from the upcoming budget and demands that there should be more clarity on Smart Cities projects.
A framework for identifying and developing smart cities is required. This will help developers as well as sellers and also help buyers make informed decisions. Besides, he also urged to modify existing taxation rules of rental income, which will encourage investment in rental housing.
Utkarsh Joshi, Principal, The HR Fund
We expect the budget to have a positive effect on the human resource solution (HR) industry, which manages not only the matchmaking of talent with jobs available but also has started contributing significantly towards the entire talent management processes with innovative technology in a compliant and secure environment. We expect this budget to be pro-business and should lead to an upswing in hiring across multiple industry sectors. This would strengthen the already positive hiring sentiments across industries as several estimates and job outlook reports suggest a strong increase in hiring over last year.
Sameer Bora, EVP Research & Development, Next Education India Pvt. Ltd
Education is a long-term investment into the future of a country. Allocations in education have to be viewed with a 10-15 year payback period. Digitization is the cheapest scalable solution available to counter the parallel problems of scarcity of quality teachers and inadequate mechanism to reach out to Tier III and IV cities of India. The new government should make sizable allocations towards facilitation of digitization in the education sector. This will ensure access to quality education in every nook and corner of the country. Refurbishment of existing facilities, major fund infusion in rural India and introduction of regulatory reforms specially devised to increase the gross enrollment ratio are other areas that demand attention. Tax breaks and lower borrowing costs for companies and vendors involved in school education will allow more participation from the private sector.
Investors too need a deep breath!!!
Not only startups, investors are also keeping high hopes from upcoming Union Budget 2015-16.
Ritesh Malik of Guerrilla Ventures shares his pre-budget recommendations. The three major expectations are:
- Decrease the tax on capital gain for independent angel investors. People won’t see angel investment as a lucrative scheme until this is done.
- Government should help industry leaders create a secondary angel investor market so that the primary angels can exit & have their return. This can be done by boosting cross border innovation & M&A’s.
- Boosting IPO’s for mature startups, liquidity is still a big concern for angel investors.
V Shankar, Member, The Chennai Angels
Exemption for Angel Investments from Section 56(2) (viib) of IT Act Section 56(2) (viib) {introduced by Finance Act 2012 w.e.f 01-04-2013} provides that where a closely held company issues shares to a resident, for an amount received in excess of the fair market value of the shares, then the said excess portion will be regarded as income of the company and charged to tax under the head ‘Income from other sources’. This provision will inevitably cause problems for startups; particularly IP based ones, as their FMV will always be open to debate by the IT Department at the Angel and VC stage. Angel Associations have long asked for exemption to genuine Angel Investments and have suggested a framework to identify “genuine” Angel Investments.
Operationalizing the INR 10,000 Cr Startup Fund Allocated in Union Budget 2014-15. The role for existing players such as Incubators, Accelerators, Angel Associations, VCFs etc. in this framework. Angel Associations look forward to a transparent debate on the manner in which the above aspects would be finalized.
Anil Joshi, Former Member at Mumbai Angels
Would be happy situation if this Union Budget 2015-16 can help mobilize the much talked about 10,000 Cr fund for startups and of course some tax break to both startups and early stage investors.
Ajeet Khurana, SINE
While investor’s wishlists commonly include asking for tax rebates and elimination of startup tax, my desire is far more prosaic. All I want is to have the government only announce those plans that they have the intention and wherewithal to implement. Loud announcements (e.g. Bullet Train) in the budget cause a temporary upswing in the investor’s mood, only to be followed by disappointment at the lack of execution. My message to the government is that we are not in election season anymore. Stop focusing merely on saying the right things, and start doing the right things. Let investors know that they can rely on the government to mean what it says.
Anirudh Damani, Managing Partner, Artha Venture Partners
- Govt must address taxation issues like Implementation of GST, removal of the oppressing tax regime, Removal of MAT on all infrastructure projects, Tax-holidays for startups, Change STT into an advance tax, incentives to invest into startups
- Govt sponsored debt fund that will provide soft loans to banks/debt funds to invest into startups
- There should a nodal authority in each state that will provide a company the ability to incorporate in under 72 hours
- Allow companies to shut-down within 60 days if they meet certain criteria
- Removal of all other pieces of identification except for Aadhar (DIN, PAN, DL, etc.)
- DCT of all subsidies and expiration dates on subsidies
Recent Announcements
The government has recently announced lot of schemes to encourage startup ecosystem in the country. Last month, the Reserve Bank of India (RBI) has decided to allocate around INR 2,000 Cr. in 2015-16 to proposed INR 10,000 Cr. startup focused fund. The finance minister Arun Jaitley is also likely to allocate INR 2,000 Cr. as a fund of funds for seed investments in early stage startups. Besides, it also plans to fund ‘innovation labs‘ to increase the growth of startups across. Recently, Union Communication and Information Technology Minister Ravi Shankar Prasad had announced that the government will set up an electronic development fund for startups.
Not only the Modi administration is working towards the promotion of entrepreneurship, state governments are also contributing for the same. Tamil Nadu government has recently announced its plan to launch incubation facilities in association with NASSCOM for startups to promote new ventures and assist upcoming entrepreneurs by creating an appropriate ecosystem. Andhra Pradesh government is also working to develop pilot incubation facility to promote technology startups in the coastal city of Visakhapatnam.
Since the government has announced Digital India and Make In India campaign, it has created a wave of expectation among the tech startups/ecommerce/IT ecosystem. The industry’s expectations are sky high and issues need to be addressed to give them a free working environment. The startup ecosystem once again expecting that the government will address long-pending demands like Single window clearance, Ease of doing business, Tax Policy, Angel Tax, Unstructured expenses of the incubation fund, Reviewing Companies Act, Absence of focused policies, Lack of infrastructure support, Lack of adequate tax incentives and others. The ball is in the government’s court now. Creating a smooth regime for startups community will definitely act as a catalyst in the nation’s growth.
