Budget 2020: What investors want - clarity, tax parity, and infrastructure support
Even as the startup ecosystem is hopeful that Budget 2020 will take measures to improve investment inflow and solve pressing tax issues, investors have their own wish list for Finance Minister Nirmala Sitharaman.
On February 1, 2020, all eyes will be on Union Finance Minister Nirmala Sitharaman as she gives the Budget speech for the coming fiscal year. And while startups have their own list of wants, investors are also looking closely to see what the new Budget will bring.
Siddarth Pai, Founding Partner and CFO, 3one4 Capital, earlier said to YourStory: “This is a highly anticipated Budget as startups are hoping that the government will unveil certain measures that will further improve the ease of doing business, especially when there is a genuine crisis around working capital.”
But there is more that investors are looking for in Budget 2020.
Need for domestic capital
Investors believe that India continues to be largely dependent on foreign capital from the startup funding perspective.
Srini Vudayagiri, Investment Director, Peepul Capital, says, “Though the focus has shifted from west to east, thanks to investors from China and Japan, there is still a fair amount of capital from outside.”
Ritu Kumar Verma, Founding Partner, Ankur Capital, believes that capital allocation would enable more funding. Many other investors acquiesce, stating that there is a need for domestic capital from a taxation stand point as well.
This did hamper, to some extent, people’s ability to plan for their equities, when combined with the large depreciation of the Indian rupee. “The government can help from a stability angle and sustainability of tax laws,” Srini says.
“SIDBI Fund of Funds, which is key for supporting the VC industry in India and hence startup investments, should receive and continue to get budgetary support from the government. Lately, this has been slow,” says Rehan Yar Khan, Managing Partner Orios Venture Partners.
Parity in taxation
Rehan voices the need for parity in taxation between foreign and domestic investors. “Currently, it is flat 10 percent for foreign investors on all capital gains; for domestic investors it is as per the income slab and a minimum of 20 percent,” he says.
Investors also want clarity in tax compliances needed by both, investors and startups, as this continues to be a pain point in the ecosystem.
Rehan says there also is a need for parity between listed and unlisted startup capital gains tax. Currently for listed companies it is 10 percent long-term capital gains (LTCG); for unlisted it is 20 percent plus surcharge, cess etc makes it 28 percent.
“Investors are annoyed that they are taxed higher, especially when they are injecting capital into a very primary activity like building a business, unlike a secondary transaction of stock trading,” Siddarth says.
Clarity and infrastructure support
Anisha Singh, an entrepreneur who turned investor with her new fund She Capital, speaks about the lack of clarity and transparency.
“What I would really like is a clear picture of where we stand and clarity on what is the current state of affairs and where are we really headed. Whether it is policy, startups, or way ahead, we want to understand what is done, and what more can be done,” she says.
Investors believe that one of the reasons businesses continue to find the going tough in India is due to the lack of proper infrastructure. While there have been shifts and significant changes in the space, startups still need to build and create a lot of things from scratch.
“Infrastructure cost remains high for startups. If you look at rental as the percentage of revenue, it still accounts for a high interest rate. Parity in infrastructure at available costs will be helpful,” Srini says.
(Edited by Teja Lele Desai)
Budget 2020: Indian startups pin their hopes on Nirmala Sitharaman to lessen entrepreneurship woes