What India Inc. wants from Union Budget 2018

On February 1, all eyes will be trained towards Arun Jaitley as he presents the last full-fledged budget for this term. In the last budget, the FM stated that the country was “on the cusp of a massive digital revolution,” and that driving a digital economy was the government’s prerogative. India continues to ride the digital wave, but certain factions of the enterprise was left wanting. 

There’s a lot riding on Union Budget 2018, be it in terms of promoting R&D in India through tax sops, or driving the startup ecosystem in the country. Here are some excerpts from experts and leaders across various verticals, and what’s on their wishlist.

Tax sops and ease of doing business reigns high on IT sector’s wishlist

In a discussion with the Finance Minister, Nitin Kunkolienker, President of the Manufacturers’ Association for Information Technology (MAIT), brought forth a list of budget expectations that reflected the sentiments of the Indian IT industry.

Among its recommendations, MAIT emphasized on promoting manufacturing and demand under ‘Make in India’, and imposing a GST rate of 18 percent for all ITA (Information Technology Agreement) and non-ITA products.

As the 10 percent duty arbitrage does not provide sufficient differential to manufacturers, MAIT recommended that a basic customs duty of 25 percent and above should be imposed on all non-ITA items.

Additionally, to enhance ‘ease of doing business’, the association recommends setting up a component hub till the component manufacturing ecosystem stabilizes.

Representing the tech and e-commerce verticals, Sandeep Ladda, PwC India Partner, Global TMT Tax Leader and Technology Sector Leader, says that the onus lies on rejigging tax deduction norms and ease of doing business.

“Weighted deduction under section 35 (2AB) for R&D activities should be extended to companies engaged in the development and sale of software or providing IT services,” says Ladda. Additionally, he points out that the availability of credit of equalization levy to overseas online ad companies has increased cost of doing business in India.

On GST, Ladda says that while the tax collected at source has been suspended till March 2018 for e-commerce companies, it can prove to be extremely challenging to register in several states, and comply with various tedious obligations in each state. He believes the sector will benefit if this clause is revoked altogether.

Tackle cybersecurity on a war-footing

With digitization taking the center stage, it has become imperative for the government to tackle cybersecurity on a war-footing.

“Looking at the current situation and the government initiatives like digitization in India, it is expected that the budget will focus a lot more on creating funds to battle the growing concern of cybersecurity in India. Cybersecurity, according to me, deserves to be in the top five concerns in India,” says Shrenik Bhayani, General Manager at Kaspersky Lab (South Asia).

Suman Reddy, MD, Pegasystems India says: “The industry is still reeling under the Advance Pricing Agreement leading to confusion around the double taxation component of transfer pricing. We are looking for further clarity on this. Further, the development centres are looking for a more favourable deduction of Section 35 (2AB) to further India’s image as an R&D capital.”

What startups and MSMEs expect from the Union Budget

With the government firing on all cylinders to drive the ‘Make in India’ campaign, the need to nurture the startup ecosystem in the country has gained prominence. However, the newbies believe a lot more needs to be done to help them grow and mature.

Satya Prabhakar, Founder and CEO of Sulekha says that providing uncollateralized credit can go a long way. “While lot of FinTech organizations promise small-ticket personal loans, the ability to provide loans in the region of Rs 2 to 10 lakh using little collateral is beyond the ability of startups. The government can aid in scaling up business loans for MSME’s,” he explains.

With most MSMEs coming under the GST composition scheme, Prabhakar opines that Budget 2018 can look to see if marketing and promotional spends done by such entities are fully exempt from GST. This will help them to further invest and grow their business.

“Once MSME’s cross this limit, they can easily start paying the additional 18 percent tax and grow their business further,” he adds.

As technology hardware is a primary necessity to enable digital revolution, Sandipan Mitra, CEO of HungerBox says that the current costs and regulatory hurdles hurt startups a lot, especially during the early years. Citing an example, he says that the company pays an 18 percent import duty on IoT devices, and an additional 18 percent GST on it.

“A relief on customs duty on imports and easier regulatory measures would be a very good step in helping startups. Import duties could be removed and taxes could ideally be in the low single digits. This will significantly boost our business,” shares Mitra.

Hari Menon, co-founder and CEO of BigBasket says: “I feel that the budget should focus on the following two sectors: skill development and job creation; and infrastructure. Though there has been a lot of work going on in these sectors, a further fillip to these in the upcoming budget would be a positive step.”

Digital payment companies gun for preferential tax rates

“For the Budget 2018-19, we hope that the government will continue to push digitization of financial services and encourage consumers to use digital platforms for transactions. Initiatives such as Aadhaar and UPI provide a good opportunity for banks, insurers, and fintech players to expand India’s efforts towards financial inclusion,” says Gaurav Hinduja, co-founder of Capital Float.

Anand Ramachandran, CFO at TechProcess Payment Services says: “The government must consider a preferential tax rate for small businesses with majority (say 50%) income received through digital channels. This will eliminate the barriers cited by small businesses, expand the tax base, and accelerate the gains of demonetization. Government may also consider tax breaks for FinTech companies which are making significant investments in the high volume, low margin digital payments market to provide innovative solutions to merchants and consumers.”