What Indian Startups Need From Government [Pre Budget FY2016-17]

To implement the Prime Minister’s twin vision of ‘Stand-up India’ and ‘Digital India’, the industry body IAMAI has come up with specific fiscal and non-fiscal measures required by the internet industry. According to the association, the digital start-up ecosystem in India should be systematically encouraged by focusing on specific fiscal interventions.Angel Investor

On the fiscal incentives, the association has suggested the following:

  1. Improve Investment Environment:

India’s entrepreneurs need early stage venture capital – but the domestic venture capital sector needs to develop further. In the US, the VC industry took off when their government allowed the large pension funds to put 5-10% of their assets into VC firms

1.1 Angel Tax: Angel Tax under Sec 56 (2) of the Income Tax Act has not been actually tailored to restrict start-ups funding but it has put start-ups under the Income tax scanner, questioning the valuation by domestic individual investors. The criteria to qualify as an angel fund are stringent and need to be eased to support the start-up ecosystem in the country.

The association suggests that there should be tax breaks and incentives for individuals supporting start-ups with capital.

  1. Incentivize Internet Services Start-ups:

These are the largest chunk of internet companies in India. This sector, which comprises of aggregators, digital advertisers, online classifieds, bring in a lot of efficiency, and are the largest employment generators. They are either enabling businesses, or they are creating lot of employment in the country, resulting in many people are earning a lot of money than they should otherwise have.

2.1    Service Tax: Unfortunately, Start-ups have to pay huge amount over the first

three years in way of service tax. It is not that they don’t want to pay, but they have survival issues and this takes a back seat and penalties just make a struggling start-up’s life harder.

The association recommends that for the first three years, the service tax could be waived off or incentivizes the start-ups, if they pay their service taxes on time.

  1. Streamline taxation for e-Commerce marketplace Start-ups:

Online market places are changing the way businesses are done in India. Small players are setting up niche businesses in India and are attracting lot of investments in India. Online marketplaces bring in a lot of efficiency in the entire retail value chain from customer experience to payments and delivery.

3.1 Taxes on e-commerce Transactions: The e-commerce marketplace industry is being subjected to onerous VAT demands from several states. They should be recognized as marketplaces and exempt from VAT demands in states. As market places they provide a service to online sellers and pay the service tax on that account. The State of Rajasthan for example treats e-commerce players as marketplaces.

  1. Boost FinTech Start-ups:

FinTech plays a significant role in serving those underserved or not served by formal institutional mechanisms. They are also likely to play a significant role in various financial inclusion programmes of the government. Various forms of FInTech services such as pre-paid instruments, wallets and others create efficiency, transparency and wider reach in financial transaction.

4.1   P2P lending and crowd-funding need an impetus and clarity from Government: While some early inroads have been made in the P2P lending segment in the country, individual efforts have not translated into a policy from the government. The lack of clarity of rules and regulations has meant the industry is shooting in the dark. In the absence of dictated policy or scriptures, it is quite plausible that misguided individuals may fall prey to unscrupulous operators that may look to make a quick buck.

4.2   Easy KYC through aadhar will allow innovators build new services which in turn will help bring more people under the ambit of financial services: Various forms of digital payments such as pre-paid instruments, wallets and others create efficiency, transparency and wider reach in financial transaction.

What are your thoughts? Do write to us (editorial@nextbigwhat.com) if you have opinions/insights to share.

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