Startups may get tax benefit in Budget 2016 for brand building

In order to encourage start-ups, especially e-commerce companies, the Finance Ministry may look at according beneficial tax treatment to their brand building expenses in the forthcoming Budget.

According to experts, the government could allow start-ups and e-commerce companies to appropriate initial brand building expenses over several years for accounting benefits.

"The AMP expenses are very important for e-commerce companies to acquire new customers. A major part of this expenses is intangible and the government should allow identified category of AMP expenses to be capitalised," KPMG (India) Partner Tax Amarjeet Singh said.

The expenses towards advertisement, marketing and sales promotion (AMP), according to Rakesh Nangia, Managing Partner, Nangia & Co, should be allowed to be capitalised as an intangible asset.

"E-commerce sector is still grappling with outdated laws not flexible enough to adjust to its requirements. This sector unlike the conventional business models does not need to invest much in tangible asset like plant and machinery. Its assets are generally intangible in nature, like the value of its Brand," Nangia said.

Such a move, according to Ashok Maheshwary and Associates Managing Partner Amit Maheshwari, would help reduce the losses and prevent net-worth erosion of the company.

The government has decided to give host of tax incentives to encourage start-ups and some decisions are likely to be announced by Finance Minister Arun Jaitley in the 2016-17 Budget, to be presented on February 29.

The Finance Ministry may also look at providing relief to e-commerce companies with regard to withholding tax. Currently companies are required to withhold 10 per cent of the payment as tax.

"E-commerce companies incur significant losses in the initial years of operations. The tax withheld on the commission received by e-commerce companies are thus required to be claimed as refund. The same would result in a cash flow issues for them.

"Further, relaxation of withholding tax compliances by e-commerce companies, which are more in the nature of the start-ups, would enable them to focus more on the business with the reduced administrative burden resulting from relaxation," Deloitte Haskins & Sells LLP Partner CA Gupta said.