Budget 2019: Coworking space wants Nirmala Sitharaman to ‘appreciate their business model’

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Updated: July 4, 2019 5:21:45 PM

Budget 2019 India: Coworking space, part of the shared economy models that are now all-encompassing and prevalent in all segments, along with co-living are perhaps the fastest growing segments. However, when it comes to the tax laws, particularly, GST, “there is not enough appreciation of the business models."

Budget 2019, Union Budget 2019 India, Budget 2019 India, Budget 2019-20Budget 2019 India: Despite the improvements in rankings, on the ground, the plethora of registrations, licenses and approvals needed remain onerous for coworking players.

Budget 2019 India: Coworking segment has grown significantly in India since around 2013 from a handful of spaces to up to 400 spaces last year with global players such as WeWork, Regus have been tapping the domestic market along with prominent Indian companies such as Innov8 (now part of OYO), CoWrks, Smartworks, 91springboard etc. 

Simplification of Tax Laws

Coworking, part of the shared economy models are now all-encompassing and prevalent in all segments and coworking along with co-living are perhaps the fastest growing segments. However, when it comes to the tax laws, particularly, GST, “there is not enough appreciation of the business models. In many cases, the company only functions as an aggregator or facilitator and does not actually carry on the transaction between the buyer and seller.  Yet, the laws mandate it to collect tax on the gross value of the transaction, leading to onerous compliances and cash flow issues,” Abhishek Goenka, CEO & CFO, CoWrks told Financial Express Online.

The GST laws, according to Goenka, should recognise the aggregator approach and based on that levy the applicable tax only on the net revenue. Since there is a full trail of the transactions, in any case, there would be the ability to audit and not result in any loss of revenues, he added.

Also read: Budget 2019: Angel investors missed government’s attention so far but expect Nirmala Sitharaman to iron out these wrinkles

Ease of Doing Business

Despite the improvements in rankings, on the ground, the plethora of registrations, licenses and approvals needed remain onerous for coworking players. Particularly for new age business models like coworking says Goenka, “there is ambiguity and lack of clarity on the applicability of many of these regulations. For example, who is liable to comply with shops and establishment laws, does a law applicable to the occupant apply to the co-working operator also, etc.” 

A single window approval approach is required by coworking businesses such that depending on operations (whether it is only providing services, or manufacturing, or based on the number of employees, or the number of premises) it makes the necessary compliances and filings instead of having to seek multiple approvals for the same business. “This will also benefit the regulator by having an overall perspective on the operations of the business,” said Goenka. 

Group Consolidation

There are several businesses that are required to set up separate legal entities for each project or location. This results in a situation where there are losses in newer ventures and the more mature ventures make profits. “Since the losses and profits are in different legal entities, it is not possible to set them off against each other resulting in a tax outflow even when on a consolidated basis there are no profits,” said Goenka. Hence, consolidation of entities within a group (to be suitably defined to prevent any abuse) should be permitted for tax purposes.

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