Budget 2023-24 expectations from startups
Union Budget 2023-24 is expected to create a robust ecosystem for Aspirational Young Innovators with Tax Sops and Policy Push Funding is the key issue and tax sops would make a robust startup ecosystem in the country Edtech is poised to become $30 billion in size over the next 10 years and a lower GST slab would break barriers to the democratization of education in the country
By Alok Kumar, Founder and CEO, StockDaddy (EaseMyTrade)
Union Budget 2023-24, to be presented by the Finance Minister, Mrs Nirmal Sitharaman, is expected to provide enough hope that the government is going to realise the dream of Digital India with adequate provisions for Aspirational Young India. It is a high and right time to acknowledge the critical role of ‘New Technology’ in changing the lives of people. India has become the third largest startup ecosystem in the world with over 100 Unicorns and the number of startups ready to enter the elite club is increasing every day. Along with easy and affordable credit facilities and tax sops, the startup sector expects incentives for new technologies and innovations.
Technology has been transforming every aspect of life. New technologies including Artificial Intelligence (AI), Machine Learning, Data Analytics, Internet of Things (IoT), Cloud Computing, Virtual Reality, and Augmented Reality among others would further fulfil the dream of Digital India. Wider scope and sources of seed funds for Startups and promotional policies for startups and innovations would further strengthen the ecosystem. Along with higher allocation to the sector especially in Research and Development (R&D), it is expected that the government would facilitate credit facilities and private investments. The changing market Situation, the rising interest rates, recessionary fears in the West, and cautious investors have been adversely impacting the fundraising ability of the startups. According to PwC’s Startup Deals tracker CY22 Report, in 2022 Indian Startups raised $ 24 billion which was 33% less than the previous year. In terms of fundraising, the sector would keep its fingers crossed to see the results of the 2023 winter.
It is well known that a large number of start-ups suffer due to a lack of ease of doing business in India. The Union Budget needs to acknowledge this and take necessary steps to remove the bottlenecks. With the ease of doing business, seed capital and other policy support start-ups would cross, jump and dodge unnecessary procedural hurdles to establish themselves as an enterprise of promise.
Like any other sector, startups are also hopeful to get tax relief and incentives. The ecosystem would get a boost if the Minimum Alternative Tax (MAT) for eligible startups is reduced to 9% from 15% currently; MAT provisions have no threshold with regard to size and any other parameters of any company. Startups are also liable to pay MAT even if they claim an exemption under section 80IAC of the IT Act. If MAT is reduced, it will help smaller businesses in meeting their daily working capital requirements, especially during the initial days.
Presently startups are allowed to carry forward or set off losses for seven years. It would a booster if they are allowed this for 10 years. It is a genuine and much-needed push and startups would looking forward to this change. Moreover, this would be in accordance with the change brought about in 2019, allowing a company to be considered a startup for 10 years after incorporation. According to a Nasscom Report, this extension would help the startups as it will provide the full intended benefit of carrying forward and setting off losses for startups.
As the global investment scenario appears contracting. It would prudent to incentivize local venture capital firms. There is a long-standing demand pertaining to long-term capital gain tax which has also become a pain point for venture capital investors who seek rationalization and equalisation of the tax for unlisted shares and public stock investments. If the tax is rationalized, it would incentivise local VC firms to invest in companies and widen the pool of capital for startups.
Coming to sector-wise specific, the Edtech segment seeks a lower tax slab on educational products and services of 5-12%. Being in this segment, we have been witnessing that the high tax slab acts as a barrier to democratising education. At present, educational services and products are in the 18% GST slab. A promotional policy would go long way to help our economy and society to leverage the benefits of Edtech which is poised to become $30 billion in size over the next ten years, according to a 2021 report by RBSA Advisors.
In conclusion, the government needs to provide a further boost to startups and provide measures to widen the fundraising avenues. Ease of fundraising must be combined with easy access to affordable credits. With the right policy push the year 2023 will be a year of foreseeable technological innovations and advancements. Startups will redefine and transition into the new phase of human relationships with technology.
