Impact analysis of taxation policy on start-up ecosystem in India

Abstract

The study is part of the Policy Paper for the Post Graduate Program for Public Policy and management and focuses on undertaking an impact analysis of taxation policies on the start-up ecosystem in India. Liberalization, Privatization and Globalization(LPG) of the Indian economy in the year 1991 has opened up many business opportunities to the Indians. In the last three decades, India has seen rapid economic growth, which has directly translated into creating employment and economic growth. Today, the number of Indian youths interested in becoming job creators instead of job seekers increases steadily. They wish to venture out into new innovative fields, take the risk and emerge as entrepreneurs. It has directly translated into the steady growth of the number of start-ups in India in the last decade. Only less than 10% of these start-ups can thrive, and the rest fail to succeed. There are various reasons for the failure of start-ups, inexperienced entrepreneurs, lack of investments, professional guidance, to name a few. Hence governments across the countries provide all possible kind of support to encourage more start-ups to establish. India is not an exception and has taken various initiatives like Atal Innovation Mission, MUDRA Bank, ASPIRE, eBIZ portal, incubation centres and many more to promote start-ups. Apart from these schemes, tax measures/incentives are one of the most important steps taken by the Government to nurture India's entrepreneurship. This paper's prime focus is to understand the Government's various tax measures over the years to promote start-ups. It also analyses the level of awareness and utilization of these incentives among the start-ups based on the survey conducted on the Indian start-ups, which are less than ten years old since their inception. Further, certain Income Tax provisions are not explicitly intended towards start-ups, but due to the nature of the business operations, the start-ups are getting severely affected. Hence, the paper's scope includes analyzing such tax provisions that have unintended consequences on start-ups and suggest alternate measures based on international best practices. Globally, both developed and developing countries are in the race to provide various tax incentives to startups, entrepreneurs and investors in terms of taxation. The paper tries to look into those measures and their suitability for the Indian business environment.