Five Things Indian Government Can do for Start-up Eco-System

 

In a country struggling with unemployment, entrepreneurship is the bright ray of hope that not only reduces the head download (1)count of job seekers but also increases the list of job providers as entrepreneurs also need partner/staff to assist him/her in carrying on business.  The ironical fact though is that entrepreneurship isn’t exactly encouraged in India, where 65 per cent of population is under 35 and where young entrepreneurs can truly change the face of the nation. The complexities of forming an organization (Company/LLP/Partnership Firm), getting it registered with  the Registrar of Companies ,applying for trade license, excise registration, service tax registration, VAT registration, PF/ESI Registration (if required), Professional Tax Registration, Applying for a PAN Card, is such a multitude of activities and time consuming process and that the fear of it has prevented many an entrepreneur from converting his idea into action and forced many to quit mid-way and explore options like migrating to places where policies are entrepreneur friendly and time-saving. There are enough Studies to indicate what makes a nation business-friendly and the prime examples amongst them are developed nations in Europe and North America and more so rising third world nations which have, in just the last century managed to join the league in less than 40 years after getting  independent from their respective imperial masters. From these, we observe that there is scope for improvement in this arena for the Indian Government.  We are listing Five Things Indian Government Can do for Start-up Eco-System. Problem 1: Too Many Registrations On conceiving a business idea, to convert it into an organization is a thoughtful process wherein the entrepreneur has to think of the pros and cons of the various forms he can do business-the trouble free proprietor or the organized company and the in between forms of partnership firm and LLP.  Each organization is suitable to a specific kind of entrepreneur and this is where Consultants step in to advise them. As if just forming a company were not enough, the complex and tedious tax structure in our country ensures entrepreneurs have to apply for  at least about 7-8 types to registrations for different types of licenses, approvals, taxes-which they become liable to pay, more sooner than later.  Trade License, Environment Approval, Company, Income Tax, Service Tax, Excise, VAT and the list goes on. Way forward‑ Ideally an entrepreneur should have one single place to go to know about all he needs to know about registrations, licenses compliances and even more ideally it should be an online platform. When an entrepreneur is really interested to get ahead with his idea, he wouldn’t mind even paying a nominal amount of fee for all the knowledge and of course the fact that all his registration is taken care of on a single platform which saves a lot of time and effort which would otherwise have been unnecessarily wasted. Problem 2: High Taxes At 30%, Indian Corporate Tax rate is one of the highest in the world. Besides the hassle of registering a company another deterrent to an entrepreneur from starting his own company is the high rate of tax his company is subjected to and that too without any exemption limit or floor limit below which no taxes are charged. Technically, today a Company, LLP, Partnership firm has to pay 30 paisa tax even on a One Rupee Taxable Profit and for business operating at a  lower Margin in the initial years, this leaves them with very little left over after tax and a becomes a dampener for beginners. Way forward ‑ An incentive of zero taxes in the first few years could be a very encouraging step to motivate entrepreneurs to startup. A time frame of about 3-5 years looks good enough for Startups to have its feet firmly on the ground after which it can be taxed at the normal 30% rate. We are not saying that lower taxes in no means is going to directly reduce tax evasion but it still shows an initiative and intent on the part of the government to encourage Startup eco-system. Problem 3: Difficult to obtain Finance Though SIDBI and IDBI were primarily formed for facilitating loans and finance to start-ups, the dark reality is that a financial back-up or credit-worthiness is a huge prerequisite. Way forward – Raising awareness about SIDBI and IDBI and also motivating directors and managers of these Banks to have inclusive programs for their clientele is a very much required move, keeping in view of objective of encouraging entrepreneurs. Problem 4: No motivation to join Startups Youngsters after qualifying their respective courses are bent towards joining bigger brands that give them a competitive edge as well as financial well-being. A start up doesn’t lure them as it neither gives them stability nor economic advantage, besides being risky. Way forward -  If the government gives momentum to entrepreneurs to start firms, LLPs and companies, by way of tax advantages, ease of commencing business etc, it encourages youngsters to join start-ups at the commencement of their careers itself as though Brand’s Goodwill can’t be replicated immediately, at least the ease of establishment make start-up companies attractive for entrepreneurs.      Problem 5: Complex Laws Indian Tax Laws are one of the most complicated in the world and interpreting them for business purpose makes it a headache for entrepreneurs.  Besides very few consultants/lawyers can provide consultancy for all matters that affect a company being Income Tax, Companies Act, Service Tax, VAT, Industrial Production, Environment Protection etc Way forward – Simplifying laws could be a welcome move for Entrepreneurs who currently run pillar to post to find consultants for all the legal matters and also shell out a large chunk from their already low profits (in the beginning years). At Taxmantra.com, we have just launched all comprehensive tax and regulatory services for Startups and businesses.  Alok can be reached out at alokpatnia@taxmantra.com.