Startups & tech firms welcome India’s move to cut corporate tax rates


September 20, 2019

Written By ETech

Startups and technology companies have welcomed the government’s move to cut corporate taxes.

The announcement by finance minister Nirmala Sitharaman on Friday could provide an incentive for many startups to move towards profitability, industry insiders said.

“This move will reduce the divergence between capital gains tax and corporate tax substantially, thereby creating an incentive structure for many startups to look for profits,” said Nithin Kamath, chief executive officer, Zerodha, one of the very few large profitable startups from Bengaluru.

Many investors in startups sell their stakes at a higher valuation and only pay a lower capital gains tax, putting profitability on the backburner. This move will propel such entities to move towards profitability, experts said.

“We believe that the increased savings will spur investments and job creation especially in the rural, semi-urban and non-agricultural MSME sectors,” said Sujeet Kumar, co-founder, Udaan.

The government’s chief reason behind cutting corporate tax is to push its ‘Make in India’ initiative, and many medium scale manufacturers might benefit directly, they said.

“Entrepreneurs with manufacturing operations under proprietorship and partnership entities might now look to create a corporate structure going forward, because of the tax benefits being offered, so overall it may help in formalisation of the economy,” said Devangshu Dutta, chief executive, Third Eyesight, a consulta .

At a macro level, ecommerce and payment startups are looking at the move as a booster dose to help lift consumer sentiment.

Kunal Bahl, chief executive officer of Snapdeal took to Twitter to say he expected increased consumer spending after the announcement.

Kalyan Krishnamurthy, chief executive of Flipkart, also said it will boost market sentiment and economic activity before the festive season.

Although a tax reduction will benefit corporates directly, how much of that will trickle down to consumers is the big question.

What India needs now is improvement of consumer sentiment, and whether the announcement will spur consumer spending remains to be seen, industry experts pointed out.

“Sentiment is a major factor governing spending, be it for business or consumers. A reduction in personal taxes would have had a direct impact on consumer sentiment during the festive season. Whether this move will help at all remains to be seen,” said Dutta from Third Eyesight.

Source: economictimes