Can FM Nirmala Sitharaman Address Startups’ Concerns Today?


As the government struggles with revenue, startups demand a tax parity and reduction in GST

In today’s Budget, the govt is expected to announce more on the lines of G2C to address consumer spending contraction and thereby create a ripple effect in the market

GeM not enough, healthtech, edtech, EV and other startups have asked the govt to pave the way for startup-specific PPP routes which will pump the blood money to the startups’ vein for longer run

Speaking ahead of the Budget Session, Prime Minister Narendra Modi gave a short purview of the Budget.

He said,“Perhaps, for the first time in the history of India, it has happened that our finance minister had to present four-five mini budgets as separate packages in 2020. That is, the series of mini budgets continued in a way in 2020. And I am confident that this budget will also be seen as a part of the series of those four-five budgets.”

Today, as FM Nirmala Sitharaman would be delivering her 3rd Budget speech, it is a no secret that the government does not have much to offer and indeed is facing a huge deficit in terms of its own revenue estimates for the FY 2020-2021.

As usual, while the inflation, fiscal deficit and the GDP targets will be seen as a reflection of the government’s will power, how aggressively it looks to cure the situation, this Union Budget 2021, the startup industry, in particular, is looking beyond the numbers.

One of the key announcements that people would keenly look at will be to bring in parity between G2B reliefs and G2C reliefs. Most of the earlier announcements were extended to the companies in terms of loan packages  of which not more than 10% were actually utilised as the companies were not confident of the market demands.

Experts believe this could be addressed via G2C reliefs which would encourage consumers to drive the demand in the market.

Coronavirus has not only flipped the lifestyle but given the consumer spending contraction. There are some long term impacts on multiple startup sectors which need a 360° approach to restore the Pre-Covid scenario.

Hospitality, Real Estate, Mobility, Travel And Tourism Can’t Be Revived At Their Own

So far, there has been numerous analysis pertaining to the severely impacted, less impacted sectors. The Government in its Budget 2021, however, needs to address the concerns of sectors whose concerns could directly be addressed such as GST and other reliefs.

The government will need a completely different approach while solving their concerns.

For instance, amid economic recession and lowest consumer spending, a large number of companies have decided to go for WFH model for most of the employees. This has offloaded a huge operational cost for the companies. The Uber, Ola and other mobility startups however have been adversely impacted the move.

Most of the companies have cancelled their business trips, which again has impacted the mobility, hospitality and travel and tourism startups. Many of these were specifically dealing with B2B segments.

Taxation Has Been A Pain Point For Most Of The Startup Sectors   

For most of the startup sectors be it, edtech, EV, healthtech and payments, the startups have been complaining about the irrational implementation of GST. Over the year, even though there have been over 43 reforms, the complaints have reduced, yet the demand for further taxation reforms are more or less still there in most of these segments.

If edtech startups are demanding to reduce the GST from 18% to 5%, the EV startups complaints are about GST inverted duty structure and have demanded to reduce the GST on raw materials.

We, at Inc42, have covered this sector-wise here.

Dedicated Funds, More PPP Projects To Address The Tech Startups’ R&D Need 

Ahead of the Budget, the PM has already announced the creation of INR 1000 Cr Seed Fund for startups. However, this won’t alone help startups’ funding issues. So far, the fund disbursal under of Fund of Funds for Startups has been very sluggish.

Besides multiple sectors edtech, EV, agritech, healthtech and many others have pointed out the need to have the sector-specific fund for R&D purposes. For tech startups, revenue has always be an issue and this has heavily impacted them in continuing their R&D.

The government needs to support this to keep the invention going, demanded startups.

Also, GeM is not enough, healthtech, edtech, EV and other startups have asked the government to pave the way for startup-specific PPP routes.

More Needs To Be Done On ESOPs

Last year, recognising the double taxation issue in the case of ESOPs, the finance minister Nirmala Sitharaman had said in the parliament, “ Currently, ESOPs are taxable as perquisites at the time of exercise. This leads to cash-flow problems for the employees who do not sell the shares immediately and continue to hold the same for the long-term. In order to give a boost to the startup ecosystem, I propose to ease the burden of taxation on the employees by deferring the tax payment by five years or till they leave the company or when they sell their shares, whichever is earliest.”

However, going through the Finance Act 2020, soon it became clear, that the ESOP-related announcement will benefit hardly 250 startups in the country in contrast to the 40K startups that are said to be currently operational in the country.

Startups want the government to end the double taxation on ESOPs for startups. Tax deferral on ESOPs in startups by a maximum of five years is a positive move, there is much more to be done, according to most of the startup founders and investors.

The startup community has also demanded to reduce the current 5% TCS on foreign remittances to 1% for those who file income tax returns.

Union Budget 2020 is going to be presented today, on February 1, 2021 by Finance Minister, Nirmala Sitharaman. To understand what the startup ecosystem wants from the upcoming Budget, we talked to the ecosystem stakeholders.

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