Interim Budgets 2019 Expectations: Service Providers Root for Better Digital Adoption Measures Despite the significant progress in the past years, Indian service providers are unhappy with certain regulations
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India is becoming a hub for software services. Not only is the services sector becoming dominant in its contribution to the GDP, but it has also attracted a significant inflow of foreign investment. With the rapid increase in youth population looking to migrate from agriculture to services, the sector is becoming the key driver of India's economic growth.
From trade to hospitality and financing coupled with insurance and real estate, the services sector covers a wide range of fields. While there is progress, there is a need for recognition too, among other requirements. Recognizing the importance of promoting growth in the space, Government has been providing several incentives in a variety of areas.
The sector has contributed 57.12 per cent of India's Gross Value Added at the current price in the first half of 2018-19. Having no dearth of cheap labour and facilities along with skilled labour, the Indian service sector has received a total of $68.62 billion of FDI inflows between April 2000 and June 2018. Governed by both domestic and global factors, the road ahead for Indian service space looks bright.
Despite the significant progress in the past years, Indian service providers are unhappy with certain regulations. In conversation with Entrepreneur India, some of the major players in the space dished out their expectations from Interim Budget 2019:
Ever since demonetization, the majority of Indian population has shifted focus towards online payments. While 100 per cent digital adoption is still a far-fetched dream, the nation has come a long way by accepting other modes of payments apart from hard cash. The government itself has been taking initiatives to promote the mode by launching programmes like Digital India.
Cleartrip CFO, Indroneel Dutt though feels that the government should keep all slabs in mind while supporting India's digitization journey including the big-ticket transactions involved in travel. The definite limit set for net banking transactions has worked as a roadblock for individuals betting big on recreational activities.
Especially for online marketplaces, the majority of their businesses constitute of digital payments and are hoping for UPI, credit card and debit card payments to be incentivized vis-à-vis cash or cheque payments. "The Government can also consider increasing online accounting and online tax calculation procedures for thousands of MSMEs who will benefit from an easy compliance regime," suggested Satya Prabhakar, CEO and Founder of Sulekha.com.
While the promotion of online payments is one area where the government needs to work upon, the digital lending sector also calls for focus. Expecting a hike in the rate of digital adoption by MSMEs if given the right amount of funds, "an increase in investment in the digital lending sector is required to help lending platforms fuel the growth of digital SMEs and MSMEs," stated Sampad Swain, Co-Founder & CEO, Instamojo.
Tax plays a crucial role in running an economy and while the government has taken several steps to offer some relief to service providers over the years, there are areas aren't yet receiving the required attention. "The SMEs in the Service Industry attracts 10 per cent TDS and get a refund from the IT department after 8 to 9 months of year-end closure," stated Veera Swamy Arava, CEO & Director of SAT Infotech.
Explaining his dilemma, he further added, "The money essentially is bottle-necked with the Income Tax department for almost 12 to 20 months which is why I do not see any service company in India make a profit beyond 10 per cent." Arava expects to see some reduction in TDS, at least down to 2 per cent this year, for the service industries.
With the implementation of GST, major strata of the business population were swamped with relief as it strung the nation with the concept of "one nation, one tax'. However, service space is yet to grasp its benefit. Dutt feels that the upcoming budget should work on a roadmap to create "One GST Rate' on accommodation services as against four different slabs.
"Simplification of input credit mechanism on air and accommodation services as well as of GST return filing process will give a further boost to the sector," he said, adding, "TCS (Tax collection at source) leads to blockage of working capital and operational difficulties," and government should consider the complete removal of TCS.
The sector is also seeking a reduction on the GST rates along with an increased threshold on sales for their benefit. For organizations with a global presence, "Some form of concession from the Equalization Levy, which is a direct tax levied by the government on digital transactions through which payments are made to any foreign-based entity," is expected, expressed Hiren Shah, Founder and Chairman, Vertoz.
Lack of Infrastructure
The non-availability of proper infrastructure for digitization of organizations is one of the biggest pain points for the service space. Lack of necessary hardware in the country forces the forces the companies to import the facilities at a high import duty. "We need more efforts in developing in the direction to have better infrastructure, at par with the international standards, within the country itself," Shah stated.
The digital enterprises expect high-quality servers, data storage facilities and warehousing capabilities within the country in addition to hardware components like routers and firewalls to avoid dependency on international organizations. While the government has taken initiatives to induce technical & digital skills into the youth, lack of know-how has kept individuals and organizations from availing the benefit.
Apart from providing a hands-on knowledge and practical exposure of the industry to youngsters for more employability, "the government should also introduce schemes to ensure that the MSMEs get more affordable access to electricity supply. This will bring down the cost of operations and make way for more profits," Shah concluded.
The Indian government has assumed educating the youth as their biggest responsibility and has been taking steps to safeguard the interests of all stakeholders of education but there are some components that the authorities are yet to address. Rohit Manglik, CEO, EduGorilla vouches for, "Allocating bigger spending on education, provision for proper teacher training along with higher pay and administrative incentives."
"Incentives need to be provided to encourage research in all disciplines and for augmenting the technical capacity of the central educational institutions like NCERT, NUEPA, IGNOU and many more. Furthermore, a comprehensive scheme on lines of Ayushman Bharat can be a great start to improve the quality of education," he proposed.
The Barbaric Laws
Before every budget, there are certain reforms that entrepreneurs, enterprises and individuals seek from the government. The cumbersome procedure of bringing an amendment to Indian laws has worked adversely for the population. The official regulations as mentioned in the Indian constitution were designed in a particular manner, many of which are not geared towards the changing needs.
"India has too many conflicting laws with discretionary rules, interpretations, precedents based on case law and exceptions to every law/rule. Simplification of laws to make them easy for everyone to follow and removal of vested interests is the only way to help businesses and entrepreneurs," expressed Tarun Dua, Managing Director and Co-Founder E2E Networks.
Dua is adverse to India of providing concessions to start-ups only as he believes that creating a special regime for certain qualifying start-ups is a mistake that would only invite charlatans to rename themselves as start-ups to take advantage of the concessions. "Laws and rules need to be simplified for every business."
He strongly affirms that the space for entrepreneurship is loaded in favour of those with deeper pockets and armies of lawyers to deal with regulation and liaising with a bureaucracy with massive discretionary powers. "The reverse charge mechanisms within the country are a massive anachronism and have been created specifically to put the onus of collecting taxes from classes of businesses who have avoided taxes historically to increase the regulatory load on compliant businesses."
"In India, it is nearly impossible to be 100 per cent compliant with a plethora of labour, direct and indirect tax laws, coupled with special sectoral licensing and sector specific restrictions," he concluded.