Budget 2020: Tweak in IPO, ESOP norms; new funds, more on startups’ wish list for FM Sitharaman

Budget 2020 India: Startups’ budget expectations broadly looks at enabling further ease of doing business by means of relaxed regulatory and tax regimes including angel tax, listing abroad etc.

Union Budget 2020 India: As Finance Minister Nirmala Sitharaman nears presenting her second union budget on February 1, Indian startup ecosystem, the third-largest in the world in terms of number of tech startups following the US and China, has prepared a wish list that broadly stresses on enabling further ease of doing business by means of relaxed regulatory and tax regimes including angel tax, listing abroad etc. “Startups in India are taking firm roots and their continued growth needs to be encouraged,” Sitharaman had said in her last year’s speech announcing tax proposals that are expected to continue this year as well. Here are the key recommendations by startups for this year’s budget.

Direct listing on foreign exchanges — Startups want the government to provide with no capital-gain tax and no dividend, similar to Singapore, to enable companies funded by VCs to invest more in their R&D or founders to have a great incentive. Also, “we hope the government allows Indian companies to be listed directly in foreign stock exchanges without having to necessarily get listed in the country. If we can have a single window for all the registrations like company incorporation, shop establishment, GST registration etc. along with the company registration, that will help save time, efforts, and money considerably,” said Sandeep Aggarwal, Founder & CEO, Droom. Aggarwal also hoped for a shorter turnaround for winding up a company.

Liquidity Access — Fund availability has to be made for a conducive and supportive financial environment since the lending fintechs are largely the ones that cater to the masses or the people who are not served by the formal financial institutions, said Manish Khera, Founder & CEO, HAPPY. Though there are many funds established for the fintechs, the flow of money for the same has its own challenges and hence there has to be rationalization of MAT tax rate along with the increase in the minimum threshold for tax exemption,” added Khera as many end up paying taxes despite being eligible for the tax holiday.

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Lower corporate tax — It is expected that the government should maintain the corporate tax rate that was reduced to 22 per cent from 30 per cent last year as it would lead to relatively healthier cash flow within the system and enable companies to plough funds back into the business, said Rohan Bhargava, Co-founder, CashKaro. In addition to this, Bhargava expected a waiver of angel tax for the DPIIT registered Startups, as announced in July last year.

Revocation of Zero MDR — The lack of clarity around Zero MDR is inhibiting the adoption of digital payment infrastructure in India at a time where we need to incentivize its expansion. “One need only look at cellular tariffs: we are amongst the lowest globally, with a respectable penetration; and this is dictated by market forces. But we got here because when this field was green, the operators were able to charge what might today be considered high, to allow for the capex required to lay our mobile infrastructure,” said Utkarsh Sinha, Managing Director, Bexley Advisors. MDR may need to go through a similar cycle: if anything, companies need to be allowed to charge more freely so they are incentivized to expand to underserved areas, rather than have their wings clipped, he said.

ESOP Taxation — Most startups and companies use employee stock options to incentivise their workforce and retain top talent. However, according to Akshay Hegde, Co-Founder, ShakeDeal current tax laws mandate that ESOPs are taxed twice – first, as a prerequisite at the point of exercising the stock option, and second, as capital gains at the point of selling it. Deferring the collection of the tax to the point of sale rather than the point of vesting will greatly enhance its efficacy as a compensation instrument,” said Hegde.

Innovation Fund — Reducing the angel tax rate from the current 30 per cent for investors funding emerging startups and reducing tax burdens on established startups is a move that would be highly beneficial for Fintech lenders in the upcoming budget, according to Aditya Kumar, Founder & CEO, Qbera. “The government should also look to set-up an innovation fund to enable startups to effortlessly raise funds and realize growth aspirations for 2020-21 and the years to follow,” he said.

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