India is going through no ordinary economic turbulence. As Finance Minister Nirmala Sitharaman rises to present the Union budget on February 1st, there is little elbow room, fiscally, for any audacious act: consumer demand is lacklustre, tax collection is modest and the estimated GDP growth for 2019-20 is 5%, an 11-year low. As the FM, walks a tightrope, there is a silver lining. A handful of options are still available for the FM, especially when the industry’s expectations from the budget would be somewhat modest after a slew of recent interventions, including the slashing of the corporate tax.
One of the important sectors that should be an area of focus in the coming Union Budget is startups. Last year, India jumped 14 places to be 63rd among 190 nations in the World Bank’s ease of doing business ranking, a testimony to the fact that India has made significant strides in making it easier for startups to set up their operations. In the upcoming budget, we would like the government to bring in measures to ease the compliance and filings guidelines for startups and eradicate the current penal provisions. What is needed is an introduction of long-pending reforms on the direct tax code and the simplification of the Goods & Service Tax (GST).
The recommendations also include the following:-
Tax Incentive Schemes – Extension of tax incentives schemes supported under Atal Innovation Mission
Reduction in GST rates – Reduction in GST (Goods and Services Tax) rates on AIF (alternate investment fund),management fees
Tax benefits on ESOPs – The ESOPs are considered as one of the best options for start-ups at their early stages to attract skilled people and retain top talent. At present ESOPs are taxed twice – first, as a prerequisite at the point of exercising the stock option, and second, as capital gains at the point of selling it. Deferring the collection of the tax to the point of sale rather than the point of vesting will greatly enhance its efficacy as a compensation instrument.
Corporate Tax Rate – It is expected that government will maintain the current proposed corporate tax rate of 22% instead of 25% as it will lead to healthier cash flow within the system and enable companies to plough funds back into the business.
Angel Tax and others – Today startups are facing many issues such as cash flow problem as they have to deposit GST based on their invoices rather than receipts, investments made in startups being taxed at higher rates and many more such as angel tax. The ecosystem expects that the Budget would put forth a mechanism that can ease these crises focusing the areas of concerns which will help in ease of doing business and leading to “Sabka Saath & Sabka Vikas.”
Even the MSME sector contributes significantly to the Indian economy. According to the government data, the MSME share in GDP in 2016-17 was 28.9 percent. In 2016-17, there were total of 633.88 lakh MSMEs engaged in various economic activities like manufacturing, trade, other services and non-captive electricity generation and transmission. The sector plays a pivotal role in job creation also and according to CII survey, in last four years most of the jobs were created by the MSME sector only.
Moreover, hurdles in the path of MSME growth are being removed as we foresee a significant relaxation in the lending aspects for MSMEs to survive the current economic changes. The government could relax some of the compliances, which were mandatory earlier. One of the surveys conducted, wherein 91 per cent of respondents endorsed the need of technology adoption with the support of encouraging government policies and schemes. The study also found that SMEs view technology as an enabler for their business growth. Over 63.59 per cent stated that technology adoption is not a survival tactic but in anticipation of thriving growth, and hence is on the top of their priority list. Besides, many of respondents highlighted access to credit for SMEs as the most important change they expect from the budget.
“Further, there is too much pressure on MSMEs in the form of taxes without offering any significant help to them. Due to meager resources and lack of financial strength coupled with no support from various departments, the sector is prone to maximum shutdown. MSME sector is not in a good shape due to lack of consistent policies from the government and most of the services and incentivisation they receive from the government was not proportionate with the volume of taxes paid by them.”
The ecosystem of MSME needs a significant transformation as of now which will help to foster the growth of this sector in a more holistic way. Thus, the Union Budget 2020 will be the base for this transformation and growth and building up the MSME sector.
Reach us at https://taxmantra.com/compliance-retainer-india or Call/WA us at +91-9230033070 for any support/query/feedback.