BENGALURU: The start-up industry has provided a positive response to Finance Minister Arun Jaitley’s budget. Top tech entrepreneurs and industry experts said the budget had addressed issues including ‘ease of doing business’ in India. They said it had also given a boost to the digital economy and financial inclusion that would throw up opportunities for young ventures.
Digital payments, lending
The digital economy was one of the ten key themes of the budget. Software product think-tank iSPIRT, which works closely with more than 1,000 product firms said that this was a “big encouragement” to ‘India Stack effort’. India Stack is a set of APIs that allows start-ups, businesses and developers to utilise a unique digital infrastructure. The initiative aims to solve India’s hard problems towards presence-less, paperless, and cashless service delivery.
“By removing regulatory cholesterol around digital payments, the Budget sets the stage for a revolution in flow-based lending,” said Sharad Sharma, co-founder of iSPIRT. Mr. Sharma, Infosys co-founder and billionaire Nandan Nilekani and other tech entrepreneurs have been roped in by the Centre as invitee members of a committee to help get more Indians to adopt digital payments. Mr. Sharma said that post-demonetisation, digital payment is clearly going to be a key focus area of the government.
Vijay Shekhar Sharma, founder of digital-payments provider Paytm said that the government had moved the digital theme in every area of the budget. “ Every person from small shops to consumers are pushed towards the digital economy,” he said.
Start-up exodus
A growing list of Indian start-ups are moving base to overseas markets such as Singapore, the U.S. and the U.K., due to business-friendly tax regimes and regulations. Excessive red tape in processes such as early-stage investing and mergers and acquisitions is also forcing these young, promising ventures in India to shift overseas.
iSPIRT said that the budget aimed to reverse this exodus of technology companies. Sanjay Khan, senior associate at law firm Khaitan & Co and a volunteer at iSPIRT said the finance minister is extending the ‘three out of five-year’ income tax exemption to recognised start-ups to three out of any seven-year block.
He said there is focus on ease of doing business with announcements like the abolition of FIPB (Foreign Investment Promotion Board) and rationalisation of taxation on FPIs (foreign portfolio investors), convertible instruments and long-term capital gains. The budget included a lower rate of taxation of 25% for companies with revenue of less than ₹50 crore and rationalisation of labour laws.
“These are all in line with the philosophy of our Stay-in-India checklist and are expected to boost investor sentiment,” said Mr. Khan.
Among key issues from the Stay-in-India checklist which were expected to be addressed in the budget but have been missed out are angel tax and tax parity between listed and unlisted securities.
Profit-linked deduction
The increased period for profit-linked deduction for three years out of seven years as against five years is welcome, said Abhishek Goenka - Partner Direct Tax at consulting firm PricewaterhouseCoopers India. “Start-ups are not expected to make profits for the first few years. The ask was for a 10-year period, but an extension to seven years is nevertheless welcome,” said Mr Goenka.
Young companies have hailed Mr. Jaitley’s tax proposal to carry forward minimum alternate tax (MAT) credit to 15 years instead of the existing 10 years.
But Mr. Goenka of PwC said the exemption from Minimum Alternate Tax had, however, not been allowed, and an enhanced carry-over a period would not really help start-ups from a cash-flow perspective. He said the proposal to allow start-ups to carry forward losses in spite of a change in 51% of shareholding provided original promoter shareholding continues is a “big relief.”
Atul Rai, co-founder of Staqu, a Gurgaon-based artificial intelligence firm was of the view the budget did not provide any direct benefits to start-ups this year. “Besides, the tax exemptions from capital gains are rather difficult to meet, at least in the early stage of three to five years for a start-up,” he said.
