Govt to unveil new tax regime for startups

Startups could emerge as an alternate engine of growth, hope Jaitley

GN Bureau | January 16, 2016

A new tax regime for startups will be put in place soon to give them a separate status and free them from the regulatory regime for large companies.

Addressing the opening session of 'Start-up India' event, finance minister Arun Jaitley said today that some of the new tax rules would be announced through executive orders, while some of them would be done in the budget.

The government is looking at a regime to give startups complete freedom from the state, Jaitley told a gathering comprising entrepreneurs who began queuing up outside the Vigyan Bhawan at least an hour in advance for the day-long "Start-up India" event.

"Once the start-up movement picks up, it will be the eventual freedom from the state," he said, adding that the government's role would be that of a facilitator.

Jaitley said startups could emerge as an alternate engine of growth at a time when the global economy posed several challenges.

He said the Narendra Modi government had been pursuing a policy where more freedom was being given to companies, which was evident from fewer businessmen visiting the finance ministry or the pile of files in Foreign Investment Promotion Board(FIPB) coming down.

Full text of Jaitley's speech at Start-Up India program:

There is a difference, because this is probably the first time I see a large number of potential entrepreneurs here, at least Im not familiar with. Otherwise at all these formal launches, we all have the usual suspects and that itself is indicative of the break that Start-Up India is going to make with conventional economy and former launches in the conventional economy itself are. I think another very significant difference of what makes it a landmark event is a final break, or the ultimate break that you have with the conventional Licence Raj of India.

We ostensibly broke away from the Licence Raj in 1991.... but the break was only partial. It was partial because who would be funded, there was an invisible role of the state, control over land, land permissions, foreign investment proposals, environmental clearances, and of course, till the political nods came, to venture into newer areas which involved a lot of capital or energy going into it, an entrepreneur was reluctant.

Our effort over the last few years, has been to restrict the role of the state, essentially as a facilitator or in policy domain. When PM Modi was voted to power in 2014, if I look back at the changes and the direction of the changes in which we have moved in, I think some of them are extremely significant. I find that the traffic of industry visiting North block has almost ended. There are no files of FIPB clearances which are pending. There are no files that have to be pushed. Amitabh (Kant) is being called repeatedly an evangelist because the DIPP was the corridor that most people visited to have their proposals supported by the government.

Its role is now one of a campaigner, it’s role is now one of an enabler. And I think these are extremely important changes which have taken place.

What is then going to be the key difference once this start up movement picks up — it’s going to be the eventual freedom from the state that the Indian entrepreneurship will now enjoy.

It will only be a limited support of the state, in terms of its programs so there is an easier availability of capital, there is a friendly tax regime which is available, and there is an unleashing of the energy of an Indian entrepreneur where he can use his technology, he can use his sense of innovation, he can use his enterprise, and then for him sky is the real limit.

And I think there is no other option or alternative that an over populated country like India has today. If you look at the direction in which the conventional global economy is moving today, we are almost moving from a crisis situation, literally by the day. No body really can envisage looking down the tunnel, of what the situation of the world economy from one of two years from now is going to be.

Nobody can seriously predict as to what the emerging challenges down the next few months are going to be. Earlier challenges used to come, a crisis used to come, almost once in a decade. Today it may emerge even twice in a day.

You may have the impact of the Chinese economy and their currency in one part of the world, and you will have the oil prices striking you in the other part of the world, and you may have the impact of the global impact simultaneously of these challenges.

Unquestionably, the global economy has slowed down; now we can take a limited satisfaction, and I consciously use the word limited satisfaction, that even in a crisis like situation in the world, we are growing much faster.

The world almost universally recognizes us as probably the fastest growing amongst the major economies but then we are not without our own challenges. We are fully conscious of the adverse situation in which we are struggling to keep respectable growth rates in the Indian economy.

We have certain advantages — we have a booming services sector, we have a manufacturing sector slowly growing, we have increased our public spending, we have opened our doors wide enough and foreign investment is coming in a big way. At least in the urban areas we can see an increase in demand.

And therefore these are the engines which are keeping the growth rate alive. But at he same time, we also have challenges of and if we recognise those challenges, a lot of our agricultural production which is rain dependent, private investment is slow, we have two weak seasons of monsoon, and as my colleague just mentioned the government now has limited potential to create jobs within the government to sustain.

The private sector’s own expansion itself is throwing up a challenge, because they have overstressed themselves and their stress in turn gets reflected on our banking system. Something that the reserve bank and the government acting in tandem, are over the next few months, going to add to the bankers’ ability to improve and be led in greater amounts; now it is under these circumstances that the government had to explore new areas.

And it is amongst those newer areas that we conceived of the Mudra scheme. Now the Mudra scheme that the government conceived of, is actually intended to target 25% of the bottom part of India’s population, so people get loans from these finance agencies, from public sector banks, private sector banks and other agencies.

Earlier they were been exploited by money lenders at very high rates, now they get into the banking reach, and I must say, the program has been reasonably successful in the last four to five months, almost 1.73 crore entrepreneurs have enabled of those loans. By the end of this financial year, the figure will be significantly higher. And seeing the success of the movement, we are going to roll over that program year after year, and smaller entrepreneurs are being created by that process. On the Independence Day, the PM had announced the Stand Up India scheme; the Stand Up India scheme will be separately launched.

It’s the program that envisages that women entrepreneurs, entrepreneurs belonging to the schedule caste and the schedule tribes — now these were segments that were not throwing up entrepreneurs — each bank branch, public sector or private sector, would actually adopt one in the scheduled tribe and scheduled caste category and one in the women’s category.

So they will adopt two such entrepreneurs, and fund them to set up establishments. It could be a trading establishment, it could be a manufacturing establishment — and by this process at least, you can target amongst these segments that were not throwing up entrepreneurs, almost 300,000 entrepreneurs over the next one or two years, to be created.

And then the Prime Minister’s own idea and I must confess this was his original idea, that this is the world where start ups need to be encouraged. Last year in the budget, I had even suggested a start-up fund for helping the creation of start-ups. Needless to say, both the banking system and the government would make the resources available.

We have already worked upon an entrepreneur-friendly taxation regime; there are some steps that can be taken by notifications, which would be taken forth will. others require a legislative provision, which can only come as a part of the finance bill when the next budget is presented, in order to create a friendly taxation regime for start-ups.

And we expect the new India taking a cue from those Indians who elsewhere in the world, particularly in the Silicon Valley that has sent a very huge delegation here, utilize their sense of entrepreneurship, heir sense of innovation, generated ideas and created wealth, and in turn that wealth is in turn used to create and support future start-ups across the country and elsewhere in the world.

As I said, in the beginning, that this would be the final break with the license raj because the regime intended to be created is complete freedom from the state.

The more this sector becomes unregulated, think the better it will be, in the interest of the segment. One of the reasons in the last two decades why India became an important IT centre, was because we had no laws governing the field.

And I think, this entire campaign is intended to create a supportive system and thats the role of the state, and the rest really is your own sense of entrepreneurship.

We are deeply encouraged by the extent of response that we witnessed in the last two days, in hindsight, it would have been even understandable, notwithstanding the cold winter today, this function had been held in a stadium because that’s the number of people who wanted to attend this function and identified with this Start-up India launch itself because this is an area where people want a compete ecosystem which is friendly to innovation, which is friendly to enterprise, where the best ideas of the world would be created, and those ideas leading to innovation would perhaps provide this country, the best that can be seen.

Let me congratulate the department of industrial policy and promotion, my colleague Sitharaman and Amitabh Kant, and all their colleagues for having taken this great initiative, and let me express a hope that somewhere in this auditorium and elsewhere where potential entrepreneurs are listening to us probably, there are some world beaters somewhere in this crowd, and I am sure you will all become very powerful names to reckon with, we will all be very proud of you. Thank you very much.



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