Union Budget 2023: Will it be a catalyst for start-ups and small businesses to realise their full potential
Start-ups have pinned a lot of expectations on Budget 2023. Every sector has its own demands, but the crux of the matter is that it’s all about more patronage and support from the government. There is also a growing focus around the Employee Stock Ownership Plan (ESOP).
Neil Banerjee January 30, 2023
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The story of India’s start-ups is a fairy tale in the making. Start-ups are not only contributing to the national GDP but are also providing employment to thousands of people. The Union Budget 2023 can help start-ups to reach their full potential and enable them to achieve exponential growth.
“Indian start-ups have attracted over $100 billion in investments over the past 3-4 years. They have created lakhs of jobs directly and tens of lakhs of jobs indirectly. Most importantly, Indian start-ups have put India on the global map as the third largest start-up ecosystem,” says Anirudh A Damani, Managing Partner, Artha Venture Fund.
The Union Budget 2023 needs to focus on multiple aspects to create an ecosystem in which start-ups can flourish. The start-up sector hence is demanding tax reforms and Employee Stock Ownership Plans (ESOPs) as well as enabling schemes that can enhance the sector while also expanding its consumer base.
“The Union Budget 2023 should also focus on building a skilled workforce, which is crucial for an economy aspiring to be a world leader. The budget should announce sops and incentives for organisations investing in skill development. Tax reforms on ESOPs is another area where the government can provide relief to start-ups, helping them to attract and retain the right talent from the market. Start-ups have played a vital role in serving the underserved, by providing healthcare, hygiene, education and finance, and the government should incentivise these start-ups to continue their mission of social entrepreneurship,” says Manish Gupta, Co-Founder, and CEO, of Rezo.ai.
What the start-up sector expects?
Yuvraj Krishan Sharma, Co-Founder & CPO of Edverse, states that the government should focus on promoting emerging technologies in the education sector and on building a strong e-learning infrastructure. He adds that the government must place emphasis on mandating and investing in skill development, providing training in various technologies, exploring the possibilities of the metaverse, offering subsidies to edtech start-ups in areas such as R&D and on providing tax incentives and financial benefits to the sector. Additionally, a comprehensive policy to help start-ups to survive and thrive in the long run is also needed.
It is imperative that the Union Budget prioritises creating an enabling environment for education by focusing on the sector’s digital transformation. “While the primary goal of the National Education Policy (NEP) is to ensure everyone has access to education, it suffers from a lack of infrastructure, especially digital, in rural and semi-urban areas,” points out Ali Sait, CEO, Tech Avant-Garde.
“We believe that there should be dedicated funds to assist educational institutions in building and scaling digital infrastructure to become hybrid learning centres. Given that India is one of the world’s youngest and largest countries, hybrid learning is the best way to ensure that quality education reaches every corner of the country,” he adds.
Furthermore, the edtech sector has witnessed some course correction over the past year but has emerged stronger. Especially in higher education and employability, technology is the only solution and way forward. “We are looking forward to a lower tax slab for education services for students in particular. The NEP should be implemented on a priority basis which will allow the youth to learn digitally, work and still earn their degrees,” says Divya Jain, Co-founder, Seekho.
India is in a position to become a global leader in fintech innovation thanks to the thriving start-up ecosystem and the corporates that are driving the change. The Union Budget 2023 is expected to implement better corporate tax and GST rebates that will further encourage the industry’s growth and development.
“The adoption of Account Aggregation & the participation of multiple FSR’s in the ecosystem (such as the RBI, SEBI, PFRDA, IRDA, and GSTN, FIPs, and FIU), which will benefit customers by seamlessly connecting all types of asset classes with only a single consent approval in order to generate a 360-degree view, is expected,” says Abhijeet Sehgal, Co-Founder & CEO at 1Pay.
Also, the government should introduce tax parities in different sectors. “Introducing a corporate tax bracket of approximately 15 per cent would enable the service industry to grow and perform beyond expectations. Investments under Section 80C, with the current limit of Rs 1,50,000 need a revision. This will allow taxpayers to improve upon their savings, while bringing about a significant increase in their purchasing power,” says Vijay Malhotra, Co-Founder & Chief Sales Officer at SahiBandhu.
Anticipation around Game Development Fund
Recently, the online gaming industry has been showing some very positive signs. The AVGC Task Force has suggested the creation of a Game Development Fund and the organisation of an Annual Gaming Expo. The Ministry of Youth Affairs and Sports was designated as the main ministry for esports and IT rules for gaming intermediaries were also drafted. These developments have positioned the gaming industry as a leader of Brand India.
“The continued momentum set by the AVGC task force, and a progressive tax regime are the demands of this sector. The sector is looking forward to the ‘light-touch self-regulation’ mechanism for the setting up of the Game Development Fund as recommended by the AVGC task force,” says Asish Philip Abraham, Partner, Lakshmikumaran and Sridharan Attorneys.
“It is anticipated that the Union Budget 2023-24 will also allocate funds for the implementation of the recommendations of the AVGC task force as well as for the setting up of the ‘Game Development Fund’. This sector requires positive regulatory support along with progressive taxation for the next phase of its growth,” he further adds.
The need of the hour is to have a progressive taxation regime to help India to become a global gaming hub.
“Gaming is going to be one of the key sectors in the next five years to drive a significant growth in employment opportunities. We hope that the budget will contain announcements that will promote Indian game developers and service providers, which will enable the ecosystem to grow holistically,” says Gaurav Kapoor, Chief Finance Officer, Baazi Games.
The climate tech industry is expected to grow at a stupendous rate in the coming years. With a focus on renewable energy and organic farming, the climate tech industry is changing consumer behaviour at a very basic level. Increased efforts have been put in the recent years to tackle the rising global temperatures and the depleting natural resources. The government, too, has shown its commitment for mainstreaming renewable energy by introducing policies such as the Production-Linked Incentive Scheme-II (PLI-II) and schemes such as the Paramparagat Krishi Vikas Yojana (PKVY) to promote organic farming.
Energy production and its sustainability are the two major issues. India has a lot of potential but when we talk about developing close to a 100 Giga Watts (GW) of solar manufacturing capacity by 2030, we need a much more conducive environment. “Domestic content requirement needs to essentially be made compulsory for subsidised as well as for non-subsidised projects. This will immediately shoot up our growth trajectory. The government can think about centralising solar installation policies which will boost the installed renewable energy capacity, in order to achieve the goal of 500GW installed capacity by 2030,” says Deepak Jain, President, Grew Energy Pvt. Ltd.
Since agriculture is a vast sector, its expectations are high too. “The Government of India needs to initiate farmer training programmes and provide ease of licensing for bioproducts. Also, it must formulate a provision for the removal of the harmful red and blue category chemicals that are used in agriculture. The focus should also be on revising the FCO (Fertiliser Control Order) provision,” says Maninder Singh, Founder & CEO, CEF Group.
“In terms of renewable energy/biofuels, the government should encourage the infusion of better incentives in the SATAT policy at the central and state levels,” he further points out.
Increased focus on Employee Stock Ownership Plan (ESOP)
ESOPs are drawing a lot of attention. The PHD Chamber of Commerce and Industry also stressed on their importance, saying that ESOPs can be used as incentives as they are one of the best ways to motivate employees. Employees will feel more connected and invested in the organisation if they too could own the stocks of the company that they work for. This would make them feel more involved which will motivate them to do more for their organisation. Additionally, ESOPs will also help to retain talent.
The industry body recommends simplifying the surcharges on long-term and short-term capital gains taxes and offering extended tax exemptions for sunrise and essential categories. It also suggests that a single-window clearance process should be provided for start-ups to claim exemptions/deductions under the Income Tax Act, and that start-ups should receive a 100% tax break for the first three consecutive years within the first 10 years of their incorporation.
“From the start-up perspective, our expectations would be the extension of ESOP taxation reforms to start-ups and a further relaxation of the qualification criteria, to create a better sense of ownership, which will boost the morale of entrepreneurs across the fraternity. ESOPs are key to attracting quality talent and should be taxed at the final sale of shares, and not at the time of vesting. Further, there should be a push towards complete digitisation for commencing operations and starting new businesses along with having a sole industry body to drive and monitor practices like company incorporation, GST, MSME certification, shop establishment, company PAN, CIN, etc,” says Prakhar Pandey, Founder and CEO, Moolaah.
“From the investor and taxpayer perspective, the general expectation would be for additional tax benefits and for a lowering of the tax rates. Bringing up the existing income tax exemption level from Rs 2.5 lakh to Rs 5 lakh will help in creating further demand in our economic cycle and outdo our growth estimates. The purchasing power of the public will also increase,” he adds.
The start-up sector has some really high hopes from the Union Budget 2023. It is expecting some incentives from the government which will provide a much-needed boost to its growth. Tax reforms and well thought out schemes can go a long way in ensuring that the start-ups in India get an ecosystem in which they are empowered enough to achieve the success that they all dream of.