Startups do a great service by taking the risk of setting up a business that generates employment and revenue for the nation. They improve the overall efficiency of the ecosystem by finding novel solutions to routine problems. Startups contribute to economic dynamism by stirring innovation and yielding competition. However, less than one per cent of startups are actually successful in the long-run. For this reason, the government should offer much-needed support to encourage more potential entrepreneurs to take the plunge. Working on a startup and for a startup, both should be made very attractive so that more people aspire to jump aboard.
1. Support and encourage angel investors
Angel investors take a huge risk by putting in their money in a venture whose future they are quite uncertain about. At times, investors just put in their money in a product on the face value of the entrepreneur or the few employees of the startup, way before the product is ready. However, when an angel tax is levered over this, it questions the trust and judgement of the investors and discourages them to take such risks. For the best interest of existing and aspiring startups, this tax needs to be waived completely to bring in more investors.
2. Help reduce costs
The government should help startups in reducing their costs in the initial years of their operation, rather than offering tax holidays for the first three years, because most of the startups do not make profits in their early years.
Current taxation laws are more equipped for established companies, and, therefore, startups usually suffer here.
Initially, to even plan an idea, entrepreneurs need money (to build a prototype), support and trust. Entrepreneurs take a great risk here by putting their money to start something new. Current taxation laws are more equipped for established companies, and, therefore, startups usually suffer here. Efforts should be made to reduce the costs for startups as much as possible. Here are a few ways that could help startups reduce their real costs in the initial years:
· Income tax: The government should either announce different income tax slabs for startup employees or completely exempt them from paying taxes on their salaries. This should encourage more potential candidates to join startups.
· Service tax: Startups should have the ease to pay these taxes when they start raising enough revenues to bear them, or this should be done away with completely. To even rent a commercial space and run their business the legitimate way (instead of operating in residential apartments like many small-time startups do) the startups need to pay taxes over and above the actual rent, which limits their spending on other necessary resources. Costs are way heavier than any revenues, especially in the early years.
3. Single window clearance
If the government wants Indian startups to flourish and become successful, they have to push some resources for smooth functioning and help them out by providing more flexible policies. The government should understand that startups have limited resources at their command and may find the government procedures and taxation regime highly complex (registrations, permits and approvals). So, a simplified entry and exit mechanism should be laid down for the startups, to encourage them to move forward.
With much-needed support from the government, even the smallest of startups can play a significant role in the country's economic growth. I hope to see some real issues being resolved and support offered to startups in the upcoming budget.