Union Budget 2019-20: Startups are seeking concrete action from the government like enforcement of the rule of timely payment to SMEs and startups within 45 days of generation of invoice.
India Union Budget: Finance minister Nirmala Sitharaman has announced a slew of measures in her maiden budget. These measures are aimed at ending the harassment of start-ups at the hands of tax officers and giving more freedom to start-ups in managing their affairs. However, start-ups are seeking more concrete action from the government that will help them. These measures are related to ensuring timely payment to them, relaxations under the GST regime and timely refund of input tax credit (ITC) and several other things.
The industry says these steps are essential if the government wants to realise the vision of Prime Minister Narendra Modi who often talks about the importance of start-ups in innovation and bringing about the fourth industrial revolution. However, start-ups are still treated at par with other companies in several issues that are putting them at a disadvantage.
Except for a few large startups, most of the start-ups also fall in the category of small and medium industries. Under the extant rules, companies are required to clear dues of an SME unit within 45 days of generation of invoice. However, if the larges companies delay the payment to SMEs then there are no penalties on them. They are just required to disclose this thing in their balance sheets. Whereas, all companies, including startups and SMEs are required to pay GST to the government at the time of generation of invoice.
This system is hurting startups and SMEs in two ways. On the one hand, they are required to pay GST to the government on the day of generation of the invoice, on the other hand, the payment due to them is delayed for months and the government is not able to its rule to clear the payment of GST within 45 days.
“Collection of GST from SMEs and start-ups should not be at the stage of invoice generation, GST should be collected from them at the time of realisation of payment,” Sachin Taparia, Founder of Local Circles, told Financial Express Online.
Then there are other similar issues that have been left unaddressed in the Union budget like a timely refund of input tax credit that is hurting the start-ups and SMEs. According to industry sources, ITC refunds under GST have been delayed by 8-9 months.
A large number of start-ups are operating in Fintech and other cutting edge technologies that require the use of services of foreign IT companies that are registered outside the country. The government collects an equalization levy if the recipient of service is an entity registered in India. In case of some other services, the government levies GST under the reverse charge mechanism.
“If a startup like me is required to pay equalisation levy at the rate of 6% and GST under reverse charge mechanism at the flat rate of 18 per cent for issuing ads or for availing services of foreign-registered entities then it’s a cost disadvantage of 24 per cent,” Sachin Taparia of Local Circles told Financial Express Online.
Today, Indian start-ups and entrepreneurs are competing against the top-notch players of the world. Industry experts say that the government should have a long term vision for the start-ups that should enable them to compete against the best players in the world.