Budget 2020: FinMin to note – Revisions and amendments to GST is the only solution to a better Digital India

In two days, that is on Feb 1^st, 2020, the Honorable Finance Minister Nirmala Sitharaman on behalf of the PM Narendra Modi-led NDA Government will propose the Union Budget 2020-21. As the current need of the hour is to spur consumption, accelerate the investment cycle and employment as India’s GDP for FY20E slowed down to sub-5.0%, the announcements made at this year’s budget are going to be very critical. The post-GST era has so far witnessed a lot of hue and cry from various sectors on the taxation rules and policies. Although the uniform GST implementation was aimed at an improvement in the VAT system, the process seems bogged down by several compliance issues.

Looking forward to the Union Budget 2020-21, industry players await with bated breath to see what the NDA government has in store? Will the announcements be aligned to achieve the earmarked $5 trillion economies by 2024?

Voice&Data made an effort to connect with several corporate heads, entrepreneurs, startup enthusiasts to gather opinions on positives- and negatives-based Point of View on GST and other tax-related issues and what is it that is most looked forward from Budget 2020?

A few opinions that make sense:

D D Mishra, Sr Director Analyst, Gartner

“During the last several quarters we saw the economic outlook is not very positive. Modi government should now speed up the Digital India dream even faster and Government spending on the technology sector should increase. The government should focus and invest in the faster creation of digital Infrastructure to drive a technology-led economy. Additionally, we need better connectivity to boost our economy faster. The telecom sector outlook is not looking positive and hence there needs to be the immediate measure to ensure that expansion and innovation of digital networks continue across the country including the rural sector. At the moment, it appears that the approach continues to be more fragmented and the outcome expected from digital India needs to stitch to the investments. The government should ensure technology should be available to people at an affordable price. This can also translate into tax cuts. Removal of MAT or further reduction of taxes to boost exports can be a good idea and compensate for the regulatory changes happening elsewhere.

Tier 2 cities are in more demand and if infrastructure availability and other conditions become better, they provide a good opportunity for IT sector expansion. Especially, I would say offshore delivery centers and shared services are good opportunities as large cities are becoming saturated. The e-commerce sector also has many expectations to succeed and cut down its losses. A comprehensive policy on e-commerce can benefit this business which continues to bleed in terms of profit despite increased sales. There is a need to incentivize innovation which complements technology-led growth.”

Swetang Vin, Corporate Vice President, Finance and Regional CFO, AMD

The main objective should be to make direct taxes simple and easy to implement. Give sufficient time for a smooth rollout. The changes in and lowering of corporate tax in 2019 was a welcome move by the government and much appreciated. Safe harbor rule can be amended for lower markup percentage to a more realistic level so that more companies can directly apply the safe harbor rates and do away with potential litigation. This will also reduce the pressure on the tax department. For GST, please avoid making frequent changes, back and forth, etc. There should be clarifications and circulars for different kinds of businesses. This will avoid multiple points for interpretation and subsequent clarifications and circulars.

Anil Joshi, Founder & Managing Partner, Unicorn India Ventures

There is a need for Tax Parity between listed and unlisted startup capital gains tax, especially for unlisted entity since investors are always looking for long-term investment into startups, there are always uncertainties. Equal treatment with listed entities at par will be a game-changer for the industry. In addition, ESOP taxation challenges should also be addressed taking into account ESOP exercises where liquidity is not guaranteed but tax liability comes instantly. This is a very uncertain scenario especially when it's an unlisted entity. The employees are liable to pay tax, considering the fact that at the time of liquidation it can be zero. When employees exercise liquidity that time it should be taxable and a fair chance to employees should be given.

Kashish Jhamb, Executive Director and CEO, City Innovates

Lower Corporate Tax for young entrepreneurs who are under less than to Rs. 5 crore turnover should not be in the range of 25- 28% which is very difficult to sustain for a new company. Talking about businesses, we at City Innovates are into the Digital Marketing field. We are required to buy software/ tools, where we end up paying 18% GST, so companies that are pushing the vision of the country that is going digital, the GST rates must be reduced.

Yogesh Bhatia, Founder, and MD, Detel

In order to increase the penetration of LED Television in the country, we urge GoI to introduce entry-level GST Slab for TV i.e. 5%-10%. This move will certainly impact the sales of TVs in India with the affordability aspect and hence making Television a mass product. Also, recently we have been invited at Government of Haryana's Pre-Budget Consultation 2020-21, where Haryana CM, Manohar Lal Khattar has acknowledged our suggestion for Budget 2020 and have also appreciated Detel's vision of connecting 40 crore Indians.

Mohit Poddar, CEO & Co-Founder, Shoes on Loose on Expectation from Budget 2020

Any reduction in GST will give a fillip to small travel agents. I hope that the government will bring necessary provisions to accommodate four different slabs under 'One GST Rate' in this 2020 budget. We expect the government to also reduce the GST on domestic hotels and start more direct flights to places like Bali, Thailand. While the tax ratio has benefits to inbound operators to grow in the inbound market, the government can also look at setting up startup funds for travel agencies. For budget 2020, the government should create a licensing system to boost revenue and create an entry barrier. Moreover, with this budget, the Union government should take initiatives to encourage hiring in the sector by simplifying the processes.

Munira Savai, Country Manager, QAD India on Expectations from Budget 2020 

With the implementation of GST and new policy announced around e-invoicing, the government has demonstrated that its values technology led governance for transparency and efficiency. Over a period of time, digitization has gained its rightful importance focusing on ease of doing business. For budget 2020, the government needs to show commitment to supporting the manufacturing sector by introducing favorable policies and also investing in Infrastructure. Further, incentivizing the use of emerging technologies like 5G, IoT, AI, etc. for the development of a strong and resilient domestic Manufacturing Sector is imperative. Also, in the forthcoming budget, the government can plan to embrace and adopt disruptive technologies to enhance efficient governance with e-citizen services.

Utkarsh Sinha, Managing Director, Bexley Advisors

This is perhaps the most critical budget post-liberalization: it will be a test for the direction our economy takes this decade and will determine if the dampening India story can be reversed back towards its growth trajectory. FIIs and FPIs are looking for clear signals of long-term stability and progressive reforms in the economy. The lingering effects of GST reform and demonetization have put the brakes, and Budget 2020 has the potential to release them. Harassment to entrepreneurs and early investors continues, despite beliefs that the angel tax issue has been resolved. We have a situation where a well-designed measure aimed at tax avoidance is instead being used for tax collection. By forcing investors to pay capital gains tax on unrealized paper valuations, the Angel Tax places undue burdens and disincentivizes early-stage investments when we need them most. There is widespread hope in the tech and startup community that the dreaded Angel Tax will be put conclusively to rest, to help investor sentiments.

Arjun Bajaj, Founder of Shinco India

We expect from this upcoming Budget 2020 that TV’s in 32 inches and above sizes are expected to come in the 18% GST slab instead of the current 28% as TV is not considered a sin product in the current GST slab. The government should take additional steps to improve the infrastructure of the nation to help the manufacturers and the sellers in faster deliveries as well as setting up bigger and advanced manufacturing units. Also from the aspect of Indian manufacturing brands, we hope for the government to take some measures to reduce the input cost on the imported components to compete with the raising upcoming opportunities for the technology giants in India. Due to no open cell manufacturing plant in India, the customs duty should be zero.

Sheshgiri Kamath, Co-founder & CEO Kapture CRM

The tax cuts implemented by the finance minister, combined with the new fiscal boost that was announced recently are sending the right signals to the markets about the government's intent to address the economic concerns. We expect to see a cutting-edge impactful budget this time around which focuses on landmark reforms.

Swanubhuti Jain, COO, JIIF

With the recently announced RBI eKYC and other digital measures, the internet economy is going to witness some key reforms. 2020 should be an interesting year for consumer internet startups. With the Indian economy showing signs of a prolonged slowdown, the budget is being keenly anticipated. Notably, the quarter ending September 2019 saw growth drop down to 4.5%, its slowest pace since March 2013. The combined index of eight core Industries which has declined by 1.5%. The economy needs interventions both at the macro and micro levels. There is an imminent need to boost consumption by putting more disposable income in the hands of people.

Understandably, at a time of falling revenue, this is bound to be a tightrope for the government. However, income tax relief by changing tax slabs must be considered seriously by the government. Making all income up to Rs 5 lakh exempt from taxes can offer major relief to salaried people and push them towards increasing consumption. Similarly, GST reform must also be on the cards and the government must consider limiting it to two GST slabs. The startup sector, on the other hand, is looking for measures to boost the startup ecosystem including improving access to funding, boosting digital infrastructure and providing tax relief to incubators. The move to exempt startups of angel tax must be followed by further measures to improve ease of doing business and remove unfriendly tax burdens. Regulation of the digital economy and privacy laws must also be on the agenda. allocation of funds in building infrastructure and development should be in alignment with geographies where maximum tax is collected.

Kalpit Jain, CEO, Netcore Solutions

IT has been a major contributor to the Indian economy for over 2 decades now. However, the industry itself is undergoing a tectonic shift from service-based to product-based SaaS companies. The market opportunity for SaaS stands north of a trillion-dollar and India is well poised to emerge as the leader. It is hence imperative for the government to ensure the formation of policies that enable the software product-based companies to flourish and compete with the global giants. Netcore is committed to contributing to the economy and collaborating with the government in multiple ways. As such the government needs to facilitate indigenous founders through funds and tax relaxations to decrease the excessive reliance on venture capital funds. The government can also look at funding product focussed research to build India's competency and leverage in the long run in the SaaS space.

Kewal Kapoor, Director & Creative Strategist, CHAI Krestive and Return of Million Smiles. 

When Nirmala Sitharaman presented her maiden budget last year, the startup ecosystem got a generous boost in the form of tax exemptions, incubation support, and regulatory relaxation, it was met with warm support by the fledgling and budding entrepreneurs in the country. Word through the grapevine is that the government is expected to provide more incentives in this year’s budget. The DPIIT has suggested several measures to the finance ministry including extending tax incentives to incubators, reducing GST on the management fees of privately pooled investment vehicles, and tax benefits on employee stock ownership plans (ESOPs) to attract skilled workers. For MSMEs, the government must give at least three years' time to pay GST, which will allow them to continue operations. Slashing the interest rates to 6 percent from the current 18 percent will also help boost industry. Despite the fertile environment for startups, social startups in the country fail to attract venture capitalist funds. This is primarily because investors tend to look at paper valuations instead of technology innovation and profitability.

Getting funding has been a challenge, and this situation can be remedied by rolling out policies to educate investors. Also, considering the fact that a number of these enterprises are B2B, they can do with some much-needed help from corporates. Healthcare, agriculture, and education are some of the biggest and lucrative sectors in our country, and stakeholders in this space are looking to support sustainable models to solve some of our most pressing social problems. The government must offer fellowships to encourage individuals with talent and vision, create a positive and encouraging mentoring ecosystem, define big social challenges and incentivize people who come up with creative solutions and make working capital more accessible for social startups.

Rohit Manglik, CEO, EduGorilla

Online education complements school education and has played a significant role in India's digital transformation story. It enables remote, interactive, convenient and on- the -go learning for students.  The Union Budget should reduce GST rates for online education, live classes from 18% to 5%. This would make it more affordable and encourage more professionals to go for upskilling. To provide a fillip to primary education, the budget should place an emphasis on enhancing learning outcomes through teacher training as well as improving infrastructure.

Venkatesh Rangachari, Co-founder, GroCurv

While the Government of India has some favorable policies in place, which is commendable, yet there is a need to make modifications to the existing rules and regulations for the start-ups to provide the ecosystem with the support it needs to expand and flourish. To start with, we hope that the government could provide tax incentives to early-stage start-ups by easing the taxation rates which impacts the profitability and impedes the growth potential. Reduction in GST rates to 5 percent will help budding entrepreneurs thrive. Going further, the loan availing process should be eased out for start-ups which is currently a very tedious process. Due to this, new-age entrepreneurs instead of focusing on expanding the business ends up focusing more on fund-raising. The start-ups that do not have many collaterals should be allowed to mortgage their intellectual property (IP), for instance, the technology used by the start-ups.

Sandipan Mitra, CEO and Co-founder, HungerBox an institutional B2B2C Foodtech platform

Food Partners are handicapped by the current GST regulations where the input tax credit is not allowed as they collect at a lower rate of 5%. To clarify, most input expenses incurred by food partners, including dishwashing, rentals, etc. which is integral to operate their business, is at 18% but the input tax credit is not allowed. Like exporters, who do not collect the GST on their revenue, but are allowed refunds on the input taxes, Food Partners should get a similar benefit and full tax credit should be given. Employees of DPIIT-Certified Startups should be subject to a lower rate of tax. This will not only generate new employment opportunities but also encourage more Indian professionals to be a part of the startup ecosystem. Access to debt financing should be further opened up for FoodTech Players, especially for their Capex needs. This will ensure that they continue to innovate through Technology. India’s FoodTech sector, if provided the required support, can continue to make immense contributions towards the economy, and to a Digital India.