Startup Tax on Angel Investments Must Go

YourStory is the voice of the startups. While the press has been widely reporting the amendment to Income Tax Act in the Union Budget 2012-13 that impacts startups raising angel investments, no one has raised a voice against this stifling move. We are eliciting views from across the spectrum on this issue. We at YourStory want this tax to go.

Some of the active members of the startup/entrepreneurial ecosystem react to this move. Consensually, all of them are against the tax and feel it will have a negative impact on the ecosystem. S. Ramadorai, former CEO of TCS, has been brought into review this amendment. We would be happy if the amendment is completely dropped.

Here are the voices from the ecosystem stating their views on the “startup tax.”

The new regulation will choke angel investing. This in turn will adversely affect entrepreneurial startup activity. India needs 100 times more startups. As a country we can't afford to kill the nascent entrepreneurial ecosystem.

-Sharad Sharma, Indian Angel Network and Chair, Product Forum, NASSCOM

It is a move which will discourage start up entrepreneurship and will dry up angel funding for early stage entrepreneurs. A bad idea.

-Sanjeev Bikchandani, founder, Naukri.com and angel investor

I guess that if honest, genuine Angels want to invest money, then this is going to be a sharp setback to them. Also, given that 'consortiums' like the Mumbai Angels and the Indian Angels Network only assemble angels who in turn do independent deals, then this becomes a real road block.

-Alok Kejriwal, CEO and co-founder, Games2win and angel investor

I understand the new budget announcement has produced unintended consequences. If this is not clarified / amended then it will literally kill innovation in the country. This has far reaching implications going beyond the software space affecting angel investments across sectors.

-Suresh Sambandam, founder, OrangeScape

It’s obviously a policy drafted in haste. In mostly small scale manufacturing units, food processing units etc., there is a concern that there is black money entering those sectors as investments and money laundering happens. This is seriously a case of gassing the nation, to kill mosquitoes. The government has put entrepreneurs in a very tough spot, even betrayed their trust in a fundamental level on what they can do, to pull the rug underneath their feet.

-Vijay Anand, founder, The Startup Centre, Chennai, an incubation centre for early-stage startups

This is draconian and smacks of our pre-reform ideology. The start-up entrepreneur needs every support the eco-system can give in taking the baby steps to create a new venture. Translating an idea to a prototype and pilot, finishing a product design and finding the first customers are all activities which require financial resources, and finding investors who can buy into the idea and invest is, by itself, a major challenge most entrepreneurs face. This tax will adversely affect the risk-rewards for the entrepreneur as well as the investor, and the entrepreneurship scene in general.

-Srinivasan Viswanathan, founder, Partner at Apt Talent Partners, Inc. (also Executive Director, TiE Chennai) [Views are personal and not reflective of TiE Chennai]

I think this tax is ridiculous! It does not make any sense to tax an investment.

-Paul Basil, founder, Villgro, a social enterprise incubator aimed at making a difference to the lives of rural poor

I believe the India startup tax is misplaced. I am not sure the original intent was to tax individuals investing in startups, but it may end up being the unintended consequence. Since I am a US citizen, many of my investments are in companies which have an India entity and a foreign entity, so I don’t believe there's an immediate impact on my investing. In the longer term this (tax) does not bode well for entrepreneurship in India.

-Mukund Mohan, CEO of EVOL, angel investor and earlier a successful US entrepreneur

In a country where the organized sector employs less than 10% of the population, entrepreneurship is absolutely essential as a means to include more of the population in the productive growth of the economy. It is entrepreneurs who will create the structures that enable others to be productively engaged. It is therefore imperative to nurture the start-up ecosystem. Today many new ventures rely on friends and family or angel investors for their early rounds when the risk is highest and this is when funds are most precious and need to be stretched the furthest. To tax this money is to tax the country's growth engine and potential for more inclusive economic success.

-Tara Thiagarajan, Chairperson, Madura Microfinance Ltd.