Relaxing IPO-focused Regulations Is the Need Of the Hour India's startup ecosystem is maturing, and there is a greater appetite for investors to take bets on loss-making companies, with the assumption that they will be profitable in the future
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There is a pressing question before Indian startups: Should I register my company in Singapore? Several Indian startups although operating in India, have registered holding companies in Singapore to benefit from increased funding opportunities, a tax-friendly environment, and stable economic policies. While the Securities and Exchange Board of India (SEBI) rules make it appear inconceivable for loss-making startups to list on the National Stock Exchange (NSE), Singapore welcomes them.
Picture this: More than 99 per cent of all imports into Singapore enter the country duty-free. Singapore ranks 2nd for "Ease of Doing Business', while India ranks 63rd. In the Global Competitiveness indicator, Singapore ranks at the 4th position, India ranks 43rd. The company income tax rate for local Indian companies stands at a whopping 30 per cent, while Singapore applies a flat rate of 17 per cent. Singapore's zero capital gains tax sounds like entrepreneurial heaven versus Indian capital gains tax of 15-20 per cent. To top this, Singapore is generally a free port, sharing a bilateral tax treaty with India since 2005.
Also, startups want to register with Singapore's regulatory authority ACRA (Accounting and Corporate Regulatory Authority) owing to the speed at which you can register your company. All it takes is 24-48 hours via an online portal as opposed to our 15-21 day registration process.
India's startup ecosystem is maturing, and there is a greater appetite for investors to take bets on loss-making companies, with the assumption that they will be profitable in the future, a true indicator of a maturing ecosystem. Thus, relaxing IPO-focused regulations is the need of the hour. Currently, due to regulatory restrictions and requirements, IPO documents are required to call out all the risks associated without being able to balance it enough with all the future potential of the company's success.
More importantly, in a growing economy, a high capital gains tax discourages investment in job-creating financial assets. Indian investors stand to lose billions of dollars in wealth creation if SEBI doesn't work toward eliciting startups to list in the Indian market, instead of going abroad.
Another reasonable expectation from the Union Budget 2022-23 would be cutting taxes to motivate companies to invest in employee wellness services and corporate health insurance. At the moment, if a company is buying health insurance for its employees, and paying GST to insurance companies, it is unable to utilize input tax credits or claim any refund on GST. Companies are more conscious while spending on employee wellness because of the additional burden of 18 per cent. It appears as though companies are being penalized with zero rebates from the government. Especially, in a post-pandemic world, where corporates are responsible for giving their employees maximum health benefits.
Lastly, how can we incentivize the best research, talent, and professors operating out of India? At the moment, we significantly fall behind when it comes to the number of patents filed, as compared to China and the US. We lose our best engineering talents to the US, where most high-order research is conducted. The government should work towards introducing policies to strengthen higher educational institutes. Why do a majority of finest B-Tech grads from IITs prefer a foreign university? To say the least, the research opportunities abroad are far superior. To reduce this exodus of talent, the Indian government needs to foster incubators, and soon enough, India's private sector will follow suit, investing heaps and bounds in research. And for this research-first approach to be put into motion, it is imperative that our government to play a catalyst.
Giving credit where it's due – the Indian government has done its fair bit, especially with the prudent exemption of Angel Tax. Beginning 2019, this relief encouraged far greater diversity among investors, with a 93 per cent increase in the number of startups eligible for exemption from Angel Tax in 2021. But that's just one exemption – among countless others awaiting implementation and intended as a breather to Indian startups.
