Bengaluru: The latest corporate tax cuts announced by the finance ministry will the reduce cost of capital and incentivize more investments in the consumer Internet segment, according to tech startups and investors in the startup space. The Finance Ministry last week effectively reduced corporate taxes for domestic companies to 25%, down from around 30%.
Apart from this, the ministry also widened the scope of corporate social responsibility (CSR) activities by allowing domestic companies to deploy CSR funds towards incubators in various fields such as science, technology, medicine, besides incubators promoted by Centre or state or any state-owned companies.
According to Saurabh Srivastava, Chairman of Indian Angel Network, tax cuts will effectively reduce the cost of capital for companies which will likely result in a greater influx of funding into Indian startups.
“Likewise, the decision of encouraging businesses to reroute their CSR 2% spending into state-sponsored incubators will further contribute towards driving innovation and entrepreneurship with renewed vigor," added Srivastava in a statement.
“With corporates being given further permissions to utilize the CSR funds for funding incubators, it will create a close synergy between the industry and the startup ecosystem. One of the areas to support in this would be to look at the startups and organizations which are helping disadvantaged youth to upskill. It will help uplift and upskill several capable engineers across the country," said Narayan Mahadevan, co-founder of Mumbai-based tech incubator BridgeLabz.
Apart from investors, tech startups in the financial and payments space welcomed the Indian government’s corporate tax cuts.
Kumar Karpe, chief executive of payment solutions company Ingenico ePayments said that industries such as banking (private and public) along with consumer finance companies will now have a surplus of funds available that can be re-invested in capital expenditure and in hiring. “With the current global economic slowdown and the headwinds experienced by India, this move will help India become an attractive destination for global investors," he added.
“The announcement by the Finance Minister in terms of slashing effective corporate tax to 25.17% inclusive of all cess and surcharge for domestic companies will greatly benefit Indian corporates, with the startup sector slated to see an inflow of investment…These measures will go a long way in not only augmenting local businesses but also spur the overall growth of the economy," said Bhavin Turakhia, chief executive of enterprise payments startup Zeta, and messaging startup Flock.
However, Dr. Arun Singh, Chief Economist at Dun and Bradstreet said that there is a sense of low business optimism, low returns on capital invested by the corporates in the non-financial sector and an increase in inefficiency in capital employed. “(This is) indicated by increasing incremental capital-output (ICOR) ratio, (which) raises concerns over the pace of revival in (corporate) investments. Investment demand indicated by a Gross fixed capital formation which used to be around 35% in 2013 has fallen to 32% currently," he added in a statement.