BUSINESS

Union Budget 2017 Has Left Start-Ups Wanting More

Wait, what happened to all the Start-up India buzz?

01/02/2017 9:56 PM IST | Updated 01/02/2017 10:24 PM IST
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Compared to last year's budget when a host of initiatives such as the ambitious 'Start-Up India' scheme had just been announced, the latest budget exercise has given little to the sector that PM Modi until recently had been pushing vigorously, leaving startups desiring more.

One big area startups had sought more action on was greater tax relief. Many feel that the extension on tax holiday for startups from the existing five years to seven years and tax breaks for companies that make less than Rs 50 crores in turnover isn't quite relevant for startups.

"The reduction in corporate tax rate for entities with turnover less than Rs 50 crores may not be of much use for new age startups that take five to seven years and much larger turnover base to turn profitable, said Ajith Mohan Karimpana, CEO and Founder of online furniture retailer Furlenco. "Overall on a scale of 10 we would rate the budget 6.5."

Harshvardhan Lunia, CEO and Co-Founder of online lending platform Lendingkart Group, noted that some of the announced measures such as simplification of taxes, increase in tax holiday period and easier access to unsecured loans have not been addressed in this budget.

"As a part of the start-up ecosystem, we expected a little more out of the budget particularly in terms of tax relief and GST," he said. The budget does not provide any clarity on when GST will be implemented."

According to Lunia, the only positive for Indian start-ups is the reduction of profit linked deduction for start-ups to three years out of seven years as this will further improve the ease of doing business and will drive entrepreneurship in the country.

Nita Kapoor, Head – India New Ventures, News Corp, said, "Much like the Startup India initiative, the Union Budget 2017 has left the Indian startup community asking for more -- be it a 5 year tax holiday or the profit linked-deductions for start-ups are benefits which are virtually redundant."

That is because startups typically have a long gestation period to even break even, said Kapoor, adding fiscal incentives for private sector to support the setting up of more incubators through industry academic partnerships would have been a welcome measure.

Clarity on GST implementation was also among the measures that startups had been looking forward to.

"We were hoping for an announcement on the implementation of GST bill starting this financial year," said Aneesh Reddy, CEO and Co-founder, enterprise software maker Capillary Technologies.

According to Karimpana of Furlenco, given the "strong emotions that the demonetization exercise evoked" from the country at large and impending implementation of GST, the government refrained from bringing in any path-breaking changes on direct taxes.

"Most of the proposals of personal and corporate tax have marginal impact for the tax payers," said Karimpana.

However, many entrepreneurs still see the removal of Foreign Investment Promotion Board (FIPB) as a positive that should improve ease of doing business.

"The government has signaled clear and loud that it is committed to liberalising FDI policy to attract more more investments," said Sujayath Ali, CEO and Co-founder of online shopping portal Voonik. "Once the FDI reforms are announced, they will not only attract fresh funds into the current startup ecosystem, but will also promote new ventures in many untapped or underserved sectors of economy."

Archit Gupta, CEO and Founder, ClearTax called the removal of FIPB a "significant move for the startup eco-system."

"This is an excellent move for removal of lengthy and time consuming approval processes," said Gupta. "We are awaiting further details on this."

Many startups may still become indirect beneficiaries of the focus on digital payments and cashless by the government that may eventually give some cheer.

"Digital payments play a pivotal role in ensuring consistent customer experience and increasing verified transactions," said Ali of Voonik. "New merchant enabled Aadhar payments will bring many new consumers who do not have a debit card, into the digital payment environment. This will help startups improve their user identification and engagement."

Last year, among other things the government had announced a Rs 10,000 crores fund-of-funds for the startup industry. However, even after a year that fund remains unspent, according to media reports.

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