Business

Budget 2020: Seven steps to stimulate e-commerce, start-up growth

Updated : January 24, 2020 06:14 AM IST

E-commerce players are hoping that government will bring in parity between offline and online suppliers within the ecosystem.

While the government has showcased intent to minimise the impact of angel tax, the situation on the ground remains challenging.

As the first budget of the new decade, let’s explore some of the expectations that the e-commerce companies and start-ups have from Modi 2.0 government. The segment is helping enable the digital landscape within the Indian economy, paving way for the next frontier.

The expectations continue to be for the government to provide necessary stimulus to continue along the path of ease of business, simplifications in filings and registrations, spur digital enablement, support growth of entrepreneurs (both big and small) to help grow a sector that is going to be a clear differentiator in India’s growth story. Below are a few overarching themes that the segment is looking forward to in Budget 2020.

Certainty in policy

While the government has undertaken various discussions regarding policies governing the sectors and made significant traction in policy guidelines and regulation (including from an FDI perspective), it has long been asking for reasonable certainty thereon (which is a critical element for any business venture). Policies that impact the overall sector such as data-privacy, e-commerce policy as well as those dealing with e-retailers and aggregators need clarity. While new-age entrepreneurs are agile to adapt to the changing landscape and evolve, it makes it extremely difficult to sustain the pace of growth and employment creation in the country if periodic policy changes and reviews trigger significant uncertainty for doing business within the ecosystem.

Investing in the future of the segment

The government laying special emphasis on various initiatives targeting the growth of start-ups in the country such as creating incubation centres, campaigns and fund of funds. The government’s fund of funds managed by Sidbi needs to accelerate disbursement by reducing bottlenecks and automating the disbursal process, along with simplifying and clarifying of rules and laws for start-ups.

Driving supply and consumption

While a lot of government initiatives have been driven to spur the supply side, given the recent trends in the Indian economy, the sector is also looking for the government to spur consumer spending along with initiatives such as incentives to procure from start-ups. Such an increase in consumer spending could be achieved through a further reduction in income tax to increase the levels of disposable income in the hands of consumers and GST simplification (especially for smaller / home entrepreneurs, say by increasing the minimum threshold for GST registration. Similarly, deferring ESOP taxability to the point of liquidity (as against at the time of options exercise) would also help this cause (in addition to also enabling attracting and retaining top-class talent for start-ups).

Ease of digital transactions

A core element to the entire ecosystem is also the digital payments players and fintech players (including those who enable faster access to credit to consumers). With the recent introduction of zero-MDR on RuPay or UPI, the government continues its efforts to expand the base for digital payments, though it has received mixed reactions from existing industry players, as it strains the ability to recuperate the infrastructure costs incurred in building the digital ecosystem. As an essential component of financial inclusion within the country and enabling outreach to a large segment of under-served / un-served consumer population, the sector is also looking for a framework that enables fintech start-ups to digitise the economy (including ease of licensing procedures for those seeking to obtain licences (NBFC / PPI), and fintech players are open to a separate window clearance and for separate reporting requirements thereafter as well).

Ease of going global

For easy / cheaper access to capital, start-ups are also looking to a conducive regime to enable Indian companies to directly list offshore (without an Indian listing) which will in-turn also provide easier entry / exit routes for investors. Consequentially, the higher investments will provide a much-needed boost to R&D and innovation (notwithstanding employment generation) in the country.

Seeds to sow

While the government has showcased intent to minimise the impact of “angel-tax” levy (under section 56 of the Income-tax law) and has also framed legislative amendments / administrative guidance thereon in the past, the situation on the ground for several businesses has been challenging with high-pitched tax challenges (including by invoking Section 68 of the Income-tax law). Start-ups are expecting waivers / simplification of rules around such tax adjustments, primarily in situations where they have received significant share capital investments at a premium (including from PE / VC funds) to scale their operations.

Bringing equilibrium

Similarly, in the context of GST, e-commerce players are hoping that government will bring in parity between offline and online suppliers within the ecosystem (given applicability of TCS norms for ecommerce operators) and also enabling input credit refunds for start-ups which have significant procurements and input GST in initial years but little revenues for offsets.

With the ambitious target of the $5 trillion economy set in sight, the government has a key role to play in enabling new, innovative and dynamic companies to seed, grow and thrive. The government has taken several measures to fast-track growth of e-commerce and startups, and with the turn of a decade, the government needs to provide a shot in the arm to innovative and entrepreneurial Indians to come forward and create the next set of Unicorn ventures in the country.

Ankur Pahwa is Partner and National Leader, E-commerce and Consumer Internet, and Gautam Dalvi is Director, Tax and Regulatory Services, at EY India. The views are personal.

Budget 2020: Seven steps to stimulate e-commerce, start-up growth

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