Letter to FM: Simplify the legal and taxation system for startups

Dear Mr Finance Minister,

The present taxation system is very complicated that it is not very conducive for aspiring entrepreneurs, and compliances are difficult, too. Our current legal and taxation framework is such that it makes it hard for entrepreneurs to start or even shut a business. This forces even a loss-making company to pay taxes the moment it turns profitable. However, the government will only partially offset the losses it incurred in the past. This is not a healthy policy for startups.

We are in the software product business, and we pay a slew of taxes including VAT and service tax. So, more than 35-40 per cent of our profits go towards taxes.

Adapt from Singapore

Thankfully, the new government is looking determined in addressing some of the pressing issues faced by many industry sectors. However, on a macro level, the government needs to introduce a taxation system existing in other countries like Singapore, and tweak it to adapt to the Indian environment.

The Singapore government follows a graded taxation system, which means a company's tax component is linked to its existence of the business. Even then the highest slab is 17 per cent and lower slab is five-10 per cent. However, in India we follow a flat taxation system, with the highest slabs being at 35 per cent.

Simplify the paperwork

Then there is whole maze of paperwork required for claiming a refund on any tax. It takes months and even more to get the refund which could affect startups. Similarly, raising an invoice with service tax gets stuck in the bureaucracy for months. The realisation of this amount takes much longer, thus hampering cash flow of startups. The Budget should aim to simplify some of these rules and policies.

Creating ecosystem for startups

The FM should utilise a part of taxes being collected for creating infrastructure for the startup industry. The government should also build more software parks, and provide office spaces at reasonable prices and tax breaks for a longer period.

However, the most important thing for a startup is angel funding. The government should be proactive in this area. The taxation money should be used for providing angel funding to startups at softer terms. This will create conducive environment, and encourage more entrepreneurs.

Lastly, Mr FM, we have the world's best talent. However, there are a very few Indian companies that have made a global impact. We would urge you to make policies less complicated and enhance the startup ecosystem by providing such incentives. This would help many startups to go global.

(Arvind Pani is co-founder and CEO of Reverie Language Technologies. As told to Techcircle's Nikita Peer)

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