India scripted a new chapter last year as it turned from a country about consumption to a country advocating for local manufacturing. The government invited leading technology companies as part of its Make In India initiative to start locally assembling their products including electronic devices like smartphones and other home peripherals.
While the move has yielded in major brands to start local manufacturing and contract manufacturers like Foxconn to set up assembly units, it still needs to provide opportunities and benefits to replicate the success of China. Just a day before budget 2018, top voices from India’s tech sector including leading smartphone makers and startups have spoken on what they expect from Finance Minister Arun Jaitley tomorrow.
Mahesh Lingareddy, Founder & Chairman of Smartron is calling for an investment ecosystem that can help startups turn into unicorns and lead to development of an innovation engine within the country. “India needs an investment (VC) ecosystem that can pump in US$15-US$20 billion every year to support and sustain a 5000+ startup ecosystem and rival other countries like US and China. Union Budget 2018 could play a decisive role in strengthening the startup ecosystem because it is no longer about just the number of startups but also about creating a pipeline with successful yearly exits across sectors. Currently, startups are stuck at the beginning of the funnel due to lack of investment ecosystem,” Lingareddy said in a statement.
He also hopes that the government will introduce tax sops and other incentives for investors to invest in startups. “We want Indian investors to benefit from Unicorns and successful exits to create domino effect within the ecosystem. If Softbank or Tiger Global have massive exits from likes of Flipkart or Ola or Paytm, the money is going back to Japan or US. This will allow us to build a innovation engine pipeline and build 10-15 global brands over the next decade,” Lingareddy added.
Syed Tajuddin, CEO, Coolpad India believes that the government should invest more in creating digital infrastructure in all parts of the country. He adds that there is a need for more high-speed internet networks to penetrate further into the cities, villages and towns.
The government reformed the tax on goods with the launch of Goods and Services Tax (GST) that unifies taxation on goods across the country last year. However, the introduction has been marred with issues and the government was forced reduced the tax on key products at the end of 2017. Now, smartphone makers are hoping that the government will reduce GST on smartphones with Budget 2018.
“I also suggest that the government should reduce the GST on mobile handsets from 12 percent to 5 percent, especially for the smartphones under INR 10,000. With a 12 percent GST mobile phones are costlier by 4-5 percent and has also taken away the benefit under duty-differential, being offered to local manufacturers. To put “Make in India” as a driving force for the electronic manufacturing sector, the government needs to act swiftly to provide benefits to the local manufacturers, as lack of part suppliers along with a complex tax regime is already hurting the make in India initiative as a whole,” said Tajuddin in a statement.
Tajuddin’s suggestion to reduce GST on mobile devices is getting support from Keshav Bansal, Director of Intex Technologies. In a statement, Bansal is also calling for the reduction of GST rates on components used for mobile phones and Intex is suggesting all parts and subparts used in the manufacturing of mobile phones should be taxed at 12 percent, which will in turn, will reduce the price of mobile phones in a certain price band.
Bansal is also suggesting that the FM should announce the reduction in GST rate for products like power banks, television tuner cards and webcams. Other suggestions include increasing refund limit and introduction of free trade agreements with consumption based economies like the United States of America.
“FTA agreement with consumption based economies like United States so that our exports can be enhanced to these economies creating positive impact on forex reserves and enhancing positive impact on make in India agenda of government with increased demand from consumption based economies,” Bansal said in a statement shared with BGR India.
Suneet Singh Tuli, CEO & President of DataWind, the company widely recognized for its low-cost tablets said the government will be able to realize the intended benefits of GST and demonetization in FY2019. He also supported views of other industry pioneers hoping for some relief in terms of GST from the government. Tuli believes that current GST rate on low-cost tablets made by the company will not be able to help the company achieves its goal filling the gap between conventional and smart education and offer cheap tablets with internet connectivity.
“Tablet PCs carried a 5 percent sales tax before the implementation of GST. Due to tax rebates in certain Indian states, as part of make-in-India, the 5 percent was waived. In the last financial year, we have seen a steep rise due to GST from 0 percent to 18 percent. The GST rate for 7-inch tablets is also at disparity with 6-inch smartphones, which have a 12 percent, while both sets of products carry the same functionality. This made educational tablets costlier and unaffordable among low-income groups. We look forward to reduction in GST on low-cost educational tablets from 18 percent to 5 percent and if possible remove it completely. We are hopeful that the process of GST refunds gets expedited thus helping to run the business with ease.”
“We expect that the finance ministry is working on a proposal to increase the tax exemption limit from INR 2.5 lakh per annum to INR 3 lakh or more and introduce some changes in the tax slabs to lighten the taxpayers’ burden. The corporate India also has great expectations from the upcoming Union Budget as this would be the first post-GST budget and the last before the general elections of 2019. We expect a series of populist policies in this year’s budget including reduction in corporate tax to attract investments and deduction in the GST slabs as well,” said Vinu Cheriyan, CFO & Director Operations at Sennheiser Electronics India Pvt Ltd.
Cheriyan added that the company is particularly keen to know about the resources allocated by the government towards the auto industry during the next fiscal year. “We also appreciate the recent move by Indian Government to allow 100% FDI in Single Brand Retail Trading as this will increase foreign capital in the country and in turn create new avenues to generate more employment opportunities.”
Like Lingareddy, Mitesh Shah, Head of Finance, BookMyShow also hopes that the government will announce the new initiative to support India’s startup economy. “Initiatives by the Government including waving MDR on debit cards on transactions up to Rs 2,000 really go a long way in attaining this objective and we hope, on similar lines in post-budget period, rationalization mechanisms are introduced around credit cards rates as well – which will continue to be a major mode of payments. UPI should be made more cost-effective and should be given a much larger push to increase its adoption in India,” Shah said in a statement.
Ritesh Agarwal, Founder & CEO, OYO is more optimistic and hopes that the government will reduce the corporate tax with FY19 budget. “We expect a forward-looking Budget that comes good on reducing corporate tax rates to 25 percent, and effects administrative and tax reforms suggested by Easwar Committee – this will go a long way in ease of doing business in the country,” Agarwal said in a statement.
“The government has executed strong fiscal discipline in the last few years while enabling more startups and jobs through Skill India. We are hopeful that this momentum continues and there’s ample availability of skilled talent in the country not only for us but every company that has both online and offline presence,” he added.
Among major technology companies including ones locally manufacturing in the country believe are hoping for incentives after the initial decline due to reforms like GST and demonetization. Avneet Singh Marwah, Director and CEO of Super Plastronics Pvt. Ltd., a brand license of Kodak said the company welcomes the reforms but hopes for rationalization this year.
“Televisions have been put under 28 percent GST, therefore we saw a larger decline in sales in Q3. As a result offline trade has taken the maximum hit and we expect GST on television should come down to 18 percent. If the government does not consider a reduction, we may see jobs cut down by 35 percent,” said Marwah.
IAMAI has highlighted five key tax related challenges including Angel Tax, Taxation of ESOPs, multiple registration and filing under GST, the anomaly in GST rates and TCS and unlevel playing field for e-commerce to be addressed in the budget announcements.
With global economies growing faster since the great recession, corporate companies are hoping for cut in corporate tax. Pratibha Advani, CFO, Tata Communications said, “A reduction in the corporate and dividend tax rate and the abolition of all surcharges/cess etc would go a long way in bolstering organizations and helping them build a significant competitive edge in the global economy.”
One of the salient features of tomorrow’s budget announcement will be government measures to create new jobs for youth in the country. With the Economic Survey suggesting a robust growth of 7 – 7.5 percent GDP next fiscal, the government is in a strong position to support the corporate sector in creating new jobs.
Sashi Kumar, Managing Director, Indeed India, a leading job portal said “The much-awaited National Employment Policy (NEP), expected to be announced in the 2018 budget, could possibly be a game changer if implemented in time for the election.”
“With the government signalling green to 100% FDI in single brand retail via automatic route, doing business in India will get easier as foreign investments coming into the country will be liberalized. This will definitely play a key role in creating more jobs in the organized sector. Also with the recent move towards clean labelling, many start-ups are flourishing in the space with potential to create more jobs,” Kumar added.
It is clear that major tech companies are hoping for ease of business including a cut in GST rate for key products. Tech companies are also uniformly calling for the government to support the startup culture and help them with funding in the initial phase. We will have to wait and see whether Jaitley offers tax sops and announces new methods of job creation in his budget announcement tomorrow.