Budget 2019: For early-stage startups, these tax concerns beyond angel tax tops wishlist for Nirmala Sitharaman

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Updated: July 3, 2019 11:30:20 PM

Union Budget 2019 India: Beyond angel tax, taxation overall has remained a prime area of concern for startups particularly the early-stage ones in the initial three-four years of business.

Budget 2019, Union Budget 2019 India, Budget 2019 India, Budget 2019-20Union Budget 2019 India: With respect to input tax credit (ITC), young startups have higher ITC since their costs are more than their revenues while scaling up.

Union Budget 2019 India: Beyond angel tax that has largely been worked out by the government for the angel investments raised by startups from investors, taxation overall has remained a prime area of concern for startups particularly the early-stage ones in the initial three-four years of business. The issues around the Goods and Services Tax (GST) and input tax credit particularly have been on top of the expectations of young startups. For instance, 18 per cent GST payment with respect to the reverse charge mechanism paid to foreign service providers such as Amazon Web Services, Microsoft Cloud, Google etc. or paying GST on 20th of the month following invoice generation irrespective of whether they get payments from their customers or not.

“The government should bring up a new law to penalize companies who do not clear payments in less than 60 days of invoice being issued,” said Anmol Kukreja, cofounder and CEO, Skillbox. Also, GST and TDS filing should be required on a quarterly basis for startups not monthly. This will help startups reprieve from the working capital pressure due to the monthly filing, Kukreja said.

In cases where the competitor firms are not based in India, it becomes challenging for early-stage startups to compete with them. For instance, travel startups are not able to compete with foreign-registered travel companies since GST is not applicable to them. “GST adds to the operational expenditure as ticket sizes are big for travel bookings and hence, affect the decision of a traveller in choosing where to buy service from. Also, there should be a single window for all compliances. Rahul Singh, CEO and cofounder at Ithaka — a personalised travel planning early-stage startup based in Mumbai.

Also read: Budget 2019: Government should curtail spend on ‘unproductive’ things; allocate on infrastructure, says FISME

With respect to input tax credit (ITC), young startups have higher ITC since their costs are more than their revenues while scaling up. However, the refund of ITC, which should have been given in a timely manner, are not being processed at all that leads to cash flow issues, according to community platform LocalCircles’ letter to Finance Minister Nirmala Sitharaman earlier this month based on inputs from startups on its platform.

Moreover, for startups in areas such as coworking expect the government to allow them “to claim input credits on work contract and construction services supplied, as detailed under GST provisions. This would help control the cash outflow by coworking firms. The firms are hoping that input tax credit under GST be extended to developers so that it is passed on to companies who lease out space. This will help cut overall costs,” said Manas Mehrotra, Chairman, 315 Work Avenue.

Another area of taxation includes corporate tax where startups seek cut from current 30 per cent to around 20 per cent and that for technology products and services to be brought down from around 12 per cent to 15 per cent. “There are examples in these cases of countries like Singapore that help start-ups by lowering corporate taxes, relaxing compliances, reducing the rate of TDS and keeping paperwork investor friendly,” according to Swati Bhargava, cofounder, CashKaro.

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