Budget 2019 comes at a critical point of time when there is a lot of investment activity happening in the startup industry, fueled by interest from both domestic as well as international investors.
This is also validated with the recent IMF data on World Economic Outlook which pegs India to grow 7.3% in FY19 and 7.4% in FY20, which is more than India’s FY18 growth rate of 6.7% and China’s forecast of 6.6% in FY18 and 6.2% in FY19. All of this is supported by structural reform and a favourable demographic dividend leading to domestic demand-led pickup.
Further, all this growth comes amidst a volatile global landscape with uncertainty in the fuel market, escalating trade war, impending Brexit, tightening financial conditions, and higher interest rates. Thus, as committed by our Finance Minister, we expect that the interim budget will not be a populist one in the backdrop of upcoming General Elections.
Strong Focus On Ecommerce Retail Logistics Required
To leverage the strong global position of India, there should be a strong focus on the ecommerce retail logistics. The government has already demonstrated its support to the segment by granting logistics an infrastructure status. Now, ecommerce retail logistics should also be made a key part of our National Policy.
Similarly, the startups within this emerging sector should be included as a part of policy-making through focused groups, advisory bodies and other forms of interaction/inclusion.
Relaxing Threshold Of Startup India Certification
Ecommerce Policy is a welcome measure, but a lot needs to be seen on the implementation front including it being passed as legislation. In continuation to above, there is a scope for relaxing thresholds of Startup India certification with the objective to sufficiently cover the startup ecosystem.
This will provide a level playing field while competing with larger players including MNCs. Further, there should be a mechanism like a minimum allocation to ensure that small business (including startups)receive a fair share in government procurements.
Reduction In GST Rates
On the GST front, the government should reduce GST rates, allow full GST credit, provide tax exemptions to small players, further relax timelines and frequency of GST returns, and simplify return filing procedures.
Further, there is a need to clarify certain ambiguities in the law, for instance with respect to the liability of a registered dealer for GST not deposited or filed by its vendor.
The procedure for GST credits and refunds should be simplified and fastened as it adversely impacts the cash flows of small assessees.
Direct Taxation Front Should Be Boosted
On the direct taxation front, we expect some tax holidays or sops for the logistics and ecommerce sector. The government should reduce the domestic corporate taxation rates, especially for smaller companies including startups.
While recently CBDT has directed taxmen to withdraw select appeals by the end of January ’19, there is a lot that needs to be done to end tax terrorism in India. For instance, the process of assessments, enquiries, appeals, and notices must be completely automated, made time-bound, and should be delinked with the name and contact credentials of assessees. While some of these measures are a part of an ongoing government project, its implementation and timing hold the key.
Demolition Of Angel Tax
Angel taxation should be abolished for startups upon production of requisite documents. It, along with Section 56 of Income Tax Act, 1961, has dampened the investor sentiment. It has made seed funding difficult for young entrepreneurs who can fuel the economy by producing jobs as well as tech-driven efficiencies across all spheres of life.
Startup ecosystem can play a pivotal role in India’s growth story with an all-embracing approach (including social), with so many investors and startups targeting the rural market, solving their problems, empowering them, and making them a part of the mainstream economy.
The government has been very supportive on this front until now with relaxations in Angel tax (INR 10 Cr exemption) and a forthcoming roundtable on February 4, 2019. Thus, we are hopeful that the government will give due consideration to the voice of the startup and the investor community.
Easy availability of financing for small businesses is another key requirement. The non-conventional channels of funding like digital lending, NBFCs, and P2Plending should be encouraged. This can be done by making adequate room in the central bank’s fiscal and monetary policy.
Further, there is a need to relax regulations, for instance, thresholds of Rs.10 lakh on P2P lending. Instead of limiting the business opportunity, regulators must rather focus on more innovative solutions like prescribed capital ratios, capital reserves, stringent KYC norms, an effective and separate legal framework for fast and effective disposal of defaults, and so on.
Other measures enabling startups can be like Special Insurance scheme for the sector such as the one envisaged for GST dealers.
Today, India is at a very crucial juncture of its growth journey. So, it is not only important to make the right decisions, but these decisions also have to be taken swiftly to ensure that our nation’s growth pans out well in the globally volatile situation. We believe both the bureaucracy and the government are well aware and will take the right steps in this direction. The rest will become apparent on February 1 as the iconic leather briefcase arrives in the parliament. Let’s keep our fingers crossed.