E-commerce and start-ups have been a key growth engine for the economy and the government needs to continue to support its growth and provide the necessary fillip to the sector. With the Budget coming up in July, here are some of the key tax and policy expectations from the e-commerce and start-up sector.
Simplify angel tax While the government has relaxed its stand on angel tax, this needs to be further simplified by taking steps where an ‘exception-based’ approach needs to be adopted for applicability. In addition, the industry also expects immunity to be granted from angel tax on past tax orders and exemptions to be provided for all investments by category II and category III AIFs.
Taxation on consolidation needs a re-look as this will continue as a trend in the space and the selling promoters/investors often face liquidity challenges for making tax payments at the time of consolidation. Similarly, on exercise of ESOPs, employees are required to pay tax based on the FMV without having any liquidity. Such issues can be tackled by deferring such taxes to the time of liquidity event or actual receipt of cash consideration.
Flexibility in carrying forward tax losses, exemption or reduction in tax rates on withholding tax costs to the start-ups and exempting capital gains arising on sale of shares of start-up companies by investors are some of the other key measures the government should take to boost investment and growth in the sector.
Policy and regulatory issues
The government needs to clarify issues such as service providers (concierge service providers and home services) coming under the ambit of e-commerce regulations, establish reasonable thresholds on entities selling on a marketplace where there is equity participation by marketplace or group entity. FDI inflow regulations can be eased in sectors such as food retail where approvals are required from DPIIT for every round of investment which creates hindrance.
The draft policy puts online players at a disadvantage when both online and offline players have similarities in function and operations. Similarly, the policy is supposed to govern the sector and not focus on foreign vs domestic capital; there are FDI norms in place for that already.
Registration of an entity in India for foreign e-commerce companies with no physical presence serving Indian consumers is restrictive. If e-commerce companies fully comply with applicable laws and import through proper channels, domicile status should not be a factor.
Data privacy, ownership, protection, access, sharing and usage are important topics that need to be viewed from a global lens rather than in silos and hence should be based on globally accepted principles. It is important that policies in this regard consider consent of the individual and companies.
And finally, the government needs to provide more incentives and create greater simplicity for day-to-day operations to companies exploring ‘deep-tech’ such as AI, ML and IoT that are helping bring in more efficiencies and ultimately improving customer experiences. With technology playing such a big role in the growth of the country and the economy, it is imperative that we encourage and enhance support to driving innovation in the ecosystem.
Ankur Pahwa is Partner and National Leader – E-Commerce and Consumer Internet at EY India. The views expressed are personal.