Letters to the FinMin: Don't bury the start-up

by Ankur Singla, CEO & Founder, Akosha – an online consumer forum

Dear Finance Minister, As Budget 2013 approaches, there is a growing concern that you may introduce what has come to be known as the ‘start-up tax’. This tax was announced in last year’s budget but was later amended, bringing some relief to entrepreneurs. No start-up tax, please! To refresh your memory, the start-up tax or share-premium tax had sought to levy a 30-per cent tax on the premium over the fair value of shares bought by investors in all start-ups. In other words, all investments over and above the face value of shares bought by investors would be treated as income. This is absurd, to say the least. Angel investors, by definition, invest in a company because they perceive value in the business. This means they are hedging their bets on a higher valuation. Looked at from a different perspective, start-ups, by definition, are new businesses and germinate from nothing but ideas. It is therefore impossible for a start-up to justify the initial valuation of its shares in its initial stages. Celebrate our spirit Creating a prototype and finding angel investors is just the beginning of difficult path for any start-up. We pour our hearts out into this model and draw on all the creativity we have to start an enterprise that works for us, our customers as well as the economy. At the very least, please do not introduce the share-premium tax in this year’s budget as it would kill the spirit of entrepreneurship in this country. Mr Finance Minister, I urge you to refrain from making any potentially damaging decisions like the ones you made in the previous budget! Bless our angels I would go so far as to say that you should build safeguards so that angel investments are not affected, nay, encouraged. In fact, it would bode well if you offered angel investors incentives like tax breaks for supporting a business in its early stages. This is the reverse of a ‘start-up tax’ and would work wonders for everyone concerned. Start-ups on your mind From a regulatory perspective, it seems there is lack of clarity on the foreign direct investment rules relating to investment in the e-commerce sector. From a start-up perspective, we are yet to see many start-up-focused policies by the government, despite the fact that these small businesses fall within the purview of the tax net in more ways than one. Hence, as bonafide tax-payers, we expect policies that are exclusively focused on our advancement and promotion. I will conclude by pointing out that since we are a young and dynamic economy, it is imperative for the government to create a regulatory regime that is not just favorable for young entrepreneurs but aggressively encourages them. Ankur Singla is a corporate lawyer-turned-entrepreneur. His venture, Akosha, is a technology-based, online forum for consumers and brands to resolve consumer complaints and increase customer satisfaction -As told to Nikita Peer You can send your feedback on smementor@moneycontrol.com or simply post comments below