How the Government can Promote Entrepreneurship with Union Budget 2018-19
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Since 2014 when the NDA-led government took over the office, Prime Minister Narendra Modi and his cabinet ministers have publicly discussed their inclination to improve the entrepreneurial ecosystem in the country.
In fact, PM Modi during his independence day address in 2015 at Red Fort, Delhi went on to announce the Start-up India initiative, a scheme to handhold start-ups in areas like funding, innovations hubs, taxation etc. Some of the initiatives taken under Start-up India were such a hit that it helped India jump its position by 35 places to 100th position in the World Bank's ease of doing business index.
With the Union Budget 2018-19 due tomorrow, all the entrepreneurial eyes would be glued to the television expecting amendments and new initiatives from the government, which will be serving its last year in the office, to promote the entrepreneur ecosystem in the country.
Entrepreneur India reached out to the India start-up ecosystem's stakeholders to understand their expectations from tomorrow's budget:
Angel Investment Tax
This tax is listed under Section 56 (ii) of the Income Tax Act, with a tax rate of 30.9 per cent to private companies, including start-ups raising early stage investments domestically.
Taxing the entrepreneur viz. angel funding would imply less capital for growth, and an additional burden on top of service tax and income tax, the intent is to fund for growth, here it is treated as income, kind of contrary to 'startup India', shared Dr. Srikanth Sundararajan, Partner, Ventureast and hence, he suggests angel investment tax should go
Fund of Funds
In July 2016, PM Modi approved the establishment of 10,000 crore Fund of Funds for Startups (FFS) at Small Industries Development Bank of India (SIDBI) for contribution to various Alternative Investment Funds (AIF), registered with Securities and Exchange Board of India (SEBI) which would extend funding support to Startups.
As an investor, Anil Joshi, Managing Partner, Unicorn India Venture opines that the government should invite private investors to matchup to the fund, like the other countries. "With the VC's participation, start-ups are more likely to utilize fund of funds and this will help in growing the ecosystem,' he adds.
Additionally, Joshi feels the Government should issue detailed guidelines on how start-ups can go public and list the company at the BSE or NSE's SME listing platform.
"The initiative will easy out exit process and ensure liquidity for investors like us," he noted.
Capital Gain Tax
One of the biggest problems that start-ups face is accessing growth capital. If capital gains tax can be removed from equity investments (if sold after one year), then it would work to attract more investors in this space, and increase the availability of capital for start-ups.
Anupam Jalote, CEO, iCreate said, "Just as there are no long-term capital gains for exchange-traded equity investments over one year, the same facility should be extended to non-exchange traded equity investments in start-ups."
Mandate for Pension Funds
Presently, unlike Europe and America, pension funds in India do not participate in fundraising activities in India
Joshi feels the government should also come up with some guidelines for pension funds to be a part of fundraising activities so that funhouses do not have to depend on overseas investors.