The Economic Survey 2022-23 on Tuesday suggested steps that would encourage startups to shift their domiciles back to India, an exercise popularly known as reverse flipping. Simplification of the taxation of ESOPs, easing corporate laws to make them as conducive as they are is in Singapore are a few moves that are likely to encourage new-age companies to bring their base back to the country, the survey found.
Flipping is when an Indian company transforms into a 100% subsidiary of a foreign entity, after it has moved its headquarters overseas, including a transfer of its intellectual property (IP) and others. The same process, but moving back to India, from another country is known as “reverse flipping”.
While flipping was prevalent, the survey showed that the process was slowing down and reverse flipping was underway but more needs to be done. Apart from the easier ESOP tax rules and corporate laws, simplifying multiple layers of tax and uncertainty due to tax litigation, improving collaborations with private entities to set up mentorship platforms, simplifying the procedure for capital to flow into India and tapping into emerging fields were also required to further the growth of startups, the survey said.
“…there are several inherent challenges faced by startups…(but) the flipping phenomenon mentioned above reflects startups venturing out for short-term gains in the dynamic, uncertain geopolitical world. However, the flip can be reversed with the collective action by the government related regulatory bodies and other stakeholders,” the survey concluded.
Several startups like upGrad, Pristyn Care, BluSmart and Zetwerk told FE that ESOPs are now an important source of wealth creation for startup employees. However, “ESOPs are today treated much adversely as compared to listed equity. We wish to see more equitable treatment of startup ESOPs. We also urge the removal of taxation on exercising of these options and hope the LTCG tax rate on startup ESOPs be lowered to 10%, line with listed equities, as against a much higher 24% currently,” Anmol Jaggi, co-founder and CEO, BluSmart explained.