Start-up India begins today with hopes of lenient regulatory regime

India seeks to project itself as a top destination for technology and e-commerce startups, investors and entrepreneurs are hoping for a host of incentives such as low or no taxes, easy registration of companies and a generally lenient regulatory regime when government officials meet some of world’s best-known start-up names at the Start-up India event in New Delhi on Saturday.

Investment company SoftBank Corp.’s founder Masayoshi Son, taxi-hailing service Uber Technologies Inc.’s founder Travis Kalanick and collaborative workspace provider WeWork founder Adam Neumann, among others, will interact with Indian startups and policymakers at the event which, like Make in India, has now been recognized as another pet project of Prime Minister Narendra Modi.

In August, while delivering his Independence Day address from the ramparts of the Red Fort last year, Modi coined the slogan “Start-up India, Stand up India” to encourage innovation and entrepreneurship among young people.

Investors and entrepreneurs are hopeful, yet sceptical of the government announcing significant changes in the regulatory framework for start-ups.

“There are three broad things that start-ups are expecting,” said Sharad Sharma, co-founder of iSpirt, a lobby group for the software products sector. “One is to announce measures that will stop the exodus of start-ups from India to international destinations that are more favourable. Second, to get some relief from unnecessary compliance policies. Third, cultivating a better quality of entrepreneurs by setting up professional entrepreneurship courses and providing scholarships and funding for these.” One grouse of the start-up community is the capital gains tax on investments. Equity capital raised by an unlisted firm from individuals that is in excess of “fair market value” is taxable. Even early-stage companies seeking money from angel investors are subject to 33% tax.

At present, most investments in Indian start-ups are routed through Mauritius as capital gains tax on investments from that country is waived due to a provision in Double Tax Avoidance Treaty.

“Like ease of doing business, the government should also facilitate ease of raising money,” said Venktesh Shukla, president, The Indus Entrepreneurs (TiE). “Today, money comes through the Mauritius route. It makes no sense. Why can’t money come directly from Silicon Valley to India? Why does it have to go to a third country.”

Investments from Mauritius to India are tax-free, but investment from the US to India are not tax-free, said Kanwal Rekhi, a TiE member and general partner at Inventus Capital, a venture capital firm.

As per India-Mauritius Double Tax Avoidance Treaty, investors do not have to pay capital gains tax. “For people like me who have a venture capital fund, my investors ask me why you need to invest in India directly, why don’t you set up a company in Mauritius? Why do we need to pay taxes in India and taxes in the US? I keep asking the Indian government: why are you forcing us to route our investments through Mauritius? How is that helping India,” Rekhi asked.

Shukla said what Indian startups need is ease of starting a company and ease of shutting it down.

“A large number of start-ups fail. If they are not allowed to wind up gracefully, the energy is consumed in completely unproductive activities. Ability to shut down a company quickly is critical. Ability to start a company in a day or two instead of the months that it takes now is also very critical,” he added.

In a Twitter chat on Start-up India initiative, commerce and industry minister Nirmala Sitharaman said that the government will facilitate easier registration, compliance and exit of start-ups as well as provide a conducive tax regime and a stronger innovation network.

“I am so happy that the country has taken start-ups seriously. The initiative will help create a stronger image for start-ups and will help attract better talent,” said Vijay Shekhar Sharma, founder of One97 Communications Pvt. Ltd that runs Paytm.

“Start-ups have to be treated differently than the large companies. I am hoping that there will be certain relaxation for startups. For instance, Indian companies should be allowed to list outside without a listing obligation in India,” he added.

While some are optimistic, others are hoping to see some initiatives materialize like the

10,000 crore fund that the government proposed in July 2014 for start-ups and small and medium enterprises. The fund is yet to see the light of day.

Source: http://epaper.livemint.com/epaper/viewer.aspx