The expectations we have from Finance Minister Arun Jaitley this year on B-Day is that the budget will not be a populist one, but practical and bring in cause for cheer for the industry. India’s macroeconomic fundamentals augur well, accentuated by the confidence placed by global leaders, as was evident in Davos recently. Increasingly, we are witnessing some of the new-age tech companies coming out of India and building disruptive solutions for the country, which can also be mirrored in other parts of the globe. It is an apt moment in history to make an exhortation to the government to support the ecosystem which nurtures innovative thinking.
Last month, at the formal launch of the Startup India initiative, as the Prime Minister enthralled the audience with his charismatic zeal, the message was unambiguous. The government believes in the start-up vision, and is willing to walk the extra mile to help this sector grow even beyond its avowed annual growth rate of 40per cent. That’s why we are brimming with hope and would want the government to really step on the gas. Crunched due to brevity as we are, it would yet be beneficial to examine these recommendations through three broad lenses: of start-ups, e-commerce & technology service providers.
Start-upsDigital India, Make in India and the like, are mammoth-sized visions which require start-up participation for its success. Emboldened by their presence (4200-odd) as we are, and yet the threat of flight of capital cannot be simply wished away, albeit diluted after Jan 16 when the Startup India action plan was unveiled the concerns still persist. Once again we reiterate that dual levies of VAT, ST and 10per cent TDS through indirect taxes cause cash flow constraints and distort trading and channel distribution, and needs simplification. This has a negative impact on the software product ecosystem in India.
It’s common enough that investment in start-ups is fraught with risk. To make life easier, domestic angel investors should be relieved of the tax burden accruing on account of Fair Market Value norms and associated income tax implications for unlisted companies. In addition, harmonization of tax rates with long-term capital gains and continuation of the holding period of short -term capital assets to remain at 12 months are recommended. Start-ups, due to their low asset base have limited access to debt funding and angels are often the only recourse.
The conditions for allowing carry forward of losses is constrained. NASSCOM has recommended that for the purpose of capital infusion in start-ups, the condition of change in ownership structure needs to be relaxed.
E-commerceIt is a sector which is growing at almost 30per cent annually and generates employment opportunities very rapidly. The landscape remains dotted with internet-driven start-ups, and so the issues highlighted above also apply. Further, there are many state-level initiatives to tax e-commerce consignments higher thereby introducing biases and making electronic transactions less favourable, contrary to the intent of the government looking towards encouraging electronic transactions.
Proliferation of this sector is often a factor of ease of online payment mode. We have suggested this earlier as well that in “card not present” category, thresholds in two factor authentication (2FA) should be appropriately introduced to enable online transactions. What constitutes an online marketplace has been fodder for animated discussions. In continuation, taxation across states for online marketplaces must be made uniform, and anomalies removed.
Service ProvidersMulti-national companies want to extend their global footprint and the IT industry is at the forefront as it leads the Indian MNC’s journey abroad.
The idea behind tax reforms is laudable, but concerns arise as draft plans are being discussed. R&D investment in software platforms and product development is warranted, and incentives on the lines of international best practices should be continued.
The din on removal of MAT grows louder every year and government should provide a clearer road map along with the road map for rationalization of income tax, education cess and surcharge to bring down the effective corporate tax rate.
The author is President of Nasscom
