In what seems to be one of the longest Budget speeches, the number of initiatives announced for start-ups and MSMEs were elaborate. A positive move is the proposal to increase the turnover threshold for audit to Rs 5 crore from Rs 1 crore at present. This will help small entrepreneurs who have limited administrative bandwidth.
Start-ups don't always have the financial muscle to attract talent and one of the ways at their disposal is to offer long-term value creation in the form of employee stock option plans (ESOPs), in place of short-term high compensation. But till now ESOPs were taxable even before the employee could realise the value. Now, the tax payment for ESOPs has been deferred by five years or till the employee leaves the company or when they sell the shares, whichever is earliest. This will a positive move as five years is a good timeframe for a company to prove its business proposition. Plus, it will make joining start-ups an attractive proposition, says Rishi Agrawal, CEO and Co-founder of regulatory technology solutions firm Avantis, a TeamLease company.
FULL COVERAGE:Union Budget 2020
While these initiatives are in the right direction, they don't lay the foundation for a holistic policy reform for start-ups.
Agrawal, for instance, says there was no mention of simplifying and digitising laws related to labour market, which has huge potential to simplify operations for start-ups in India. A start-up today needs at least 10-15 licences and registrations. The way forward would be to subsume these under a single registration.
Agarwal explains that five Acts are applicable to a small company today in India: Minimum Wages Act, Shops and Establishments Act, Payment of Wages Act, Payment of Bonus Act and Equal Remuneration Act. Under these, multiples registers are to be maintained and managed - for leave, attendance and bonus and each has different requirements and formats. This adds to the compliance and administrative burden of small companies and entrepreneurs.
"MSMEs will grow if compliance cholesterol and regulatory burden is taken away but I didn't see any of that in the Budget that spoke about making life easier for entrepreneurs from a regulatory and compliance perspective. Structural policy reforms are essential if we want to make the rhetoric of ease of doing business a reality and that will not happen until grassroot level problems of digitisation, consolidation of laws, etc., are resolved," says Agarwal.
NASSCOM added that the Budget lacked focus on accelerating service exports. The technology services sector has been a key contributor to India's exports and GDP, and the industry body had recommended that new investments by services companies in SEZs should also be eligible for the lower corporate tax rate of 15 per cent. Further, a future-ready SEZ policy is needed and there was no indication of that in the Budget. Similarly, the focus on enabling more R&D solutions from India through specific programmes was not covered. Schemes on upskilling and reskilling did not find any mention in the Budget either.