In my previous post (link to the previous), we discussed the overall amendments required for startups in general. Now, in this post, we will focus on some of the much-needed sector-specific amendments.Firstly, I would like to address MAT concern, which was not covered in my previous post. MAT should have been completely scrapped or minimized: With various types of taxes levied such as DDT, surcharges, and education cess, it seems a good time for axing or at least minimizing the MAT rate, retaining its true character as alternate ‘minimum’ tax. Currently, MAT is at 18.5% (~21% with surcharge and cess) resulting in substantial cash outflow creating cash crunch for ploughing back profits for investments. This is particularly applicable for startups in non-IT sectors such as infrastructure, power generation, water resources, export-oriented industries, and so on. As quoted by ET (link to the report), “For latest applications under Insolvency and Bankruptcy code, the government has recently announced that Budget 2018 would carry amendments allowing such companies to set off the total loss brought forward (including unabsorbed depreciation) against the book profit for levy of MAT as against the existing provisions of reducing the loss brought forward or the unabsorbed depreciation”. This move will help companies bring back cashflow into business, and for the same reason, the amendment should be brought in for all companies and not just for those under IBC. Reference: https://economictimes.indiatimes.com/news/economy/policy/budget-2018-an-opportunity-to-realign-indias-corporate-tax-regime/articleshow/62565192.cmsT-Hub has a focused vertical on fintech with approximately 30 growth stage startups and many fintech associated accelerator programs such as YESFINTECH in association with Yes Bank, Blockchain CoE with Cashe, and more. With our expertise, here are a few observations and recommendations for the fintech sector: Last year’s amendments announced by the government were crucial, keeping in view the effects of demonetization and implementation of GST. Spurred by the positive policy environment and deeper penetration of technology, it has been a healthy boost for the financial industry, especially digital payments. According to the latest research by Deloitte India, transactions using digital wallets rise by 77% in last 18 months.Also, the fintech companies in credit lending have increased the threshold of supply. Overall, the fintech space has driven the Indian economy to a data-driven, transformative and promising path. Though there is a reason to celebrate, there’s still a long journey ahead. India must up the ante and aggressively promote these cashless trends.According to a joint study by ASSOCHAM and EY, despite the steps taken to spread awareness on the transparent environment for financial inclusion, 19% of the population is excluded leading to loss of revenue. Further, India loses 10% as fees in remittances received from NRIs across the world due to the presence of intermediaries and hierarchies of layers.Here are some of the expectations of the Indian fintech sector for Budget 2018-19:Push for the digital-first economy: Many pieces of research reveal that the current fintech amendments will help digital payments to supersede cash by 2022. There is a remarkable momentum that has been created in the digital payments ecosystem by supplying the crucial infrastructure – UPI, India Stack, eKYC, and Aadhaar. However, there is a little incentive for users to make a shift towards digital payments and for the ecosystem to gain greater adoption and synergy. We recommend tax benefits and subsidies for digital transactions. We also believe, in order to promote digital economy, curtail the usage of ATMs by reducing cash circulation and promoting digital wallets. Also, there should be new incentives and exemptions for startups working towards financial inclusion of the Indian population.References: https://assets.kpmg.com/content/dam/kpmg/in/pdf/2017/04/Digital_payments_Analysing_the_cyber_landscape.pdf Simplification of lending: Undoubtedly GST is a landmark tax reform for startups, helping to maximize the benefit for the economy. This unknowingly or unintentionally is a bearer of a huge database of taxpaying entities that can be used (with API calling) by fintech firms in determining the creditworthiness of applicants. This will help in seamless credit lending with fewer steps. Further, it will not only boost microloans lending startups but also help in taking informed decision and eventually reduce credit lending risks.T-Hub’s Health cafe is a roundup of the healthcare sector, needs and gaps with healthcare evangelists, doctors and other drivers of the sector. From the latest meetup, we believe the following need to be addressed in the budget 2018 for healthcare: Amendments in Healthcare Sector:Last year’s budget gave us a hope of healthcare upliftment in the country that primarily concentrates on human resources and medical education. But, the concerns of government spending and high out-of-pocket expenditure remain unaddressed. Also, the addressed concerns do not leave us with clarity. Furthermore, innovation in the healthcare sector is the need of the hour, which needs to be emphasized and structured.Addressing the medical infrastructure: There is the need for allocating funds towards early diagnosis and primary health centers and equipping them adequately. As per official records, as on March 31, 2015, 1, 53, 655 sub-centers, 25,308 Primary Health Centers (PHCs) and 5,396 Community Health Centers (CHCs) were functional in the country. Evidently, given India’s population, these numbers are far from adequate.While the budget addresses the medical infrastructure for public access, it is also important to pump in more funds for post-grad medical colleges to incentivize the medicos for super specialist medical services. Manufacturing in India:Requoting Kasi Raju, COO at Care Hospitals: “One area that hopefully, the Budget would address is providing encouragement for device, implants, and consumables manufacturing in India”. He feels India needs to replicate the success story of drug manufacturing in this area. This needs to be the case with stents, implants, and consumables, which in many cases are imported.Reference: http://www.businesstoday.in/union-budget-2018-19/expectations/budget-2018-indian-healthcare-health-industry-hospital-device-makers/story/267954.htmlTo ensure low out-of-pocket expenditure, we recommend incentives and subsidies for made in India devices. Till make in India devices and implants take shape effectively, there should be a tax benefit or lower import taxes for essential imported items for time being. When India’s pharma industry is ruling the global markets, why would Indian devices can’t?Given the number of accidental deaths every year in the country, the government should encourage trauma centers and rescue teams for highway accidents and also find ways to cover everyone with health insurance. Reducing GST on insurance products:As per NATHHEALTH, Indian population under health insurance is only 4% and the out-of-pocket spending in India constitutes about 86%. It is highly recommended to make health insurance mandatory for all citizens, at least beginning with the working class of the country. This can be done by introducing cheaper insurance products and then incentivize upgradation based on the spending. Reforms and amendments for Agriculture sector: While agriculture sector is the backbone of the Indian economy, Central Statistics Office (CSO) in its latest data states that the country’s economic growth is expected to slow to a four-year low at 6.5 percent in FY18, due to the poor performance of agriculture and manufacturing sectors. The CSO has pegged farm and allied sector growth to slow to 2.1 percent in the current fiscal year from 4.9 percent in the preceding year.This sector provides employment to 48.9 percent of the total workforce in India and contributes around 17-18 percent to the country’s GDP. With such great contribution to the Indian economy, the budget should focus on the following things: 1. Improving the farmers’ income by providing them with the fair market and direct selling in the marketplace. Also, positioning a greater value in global markets.2. The government should ensure to insure farmers and provide financial support after natural calamities, poor weather conditions, and pest or disease outbreaks.3. Waiving off Agri loans if the income is below 5 Lakhs for consecutive 5 years.4. The government should invest in developing innovation zones with large-scale agricultural infrastructure, skill development and also a development of the innovation with the easy availability of fertilizers, machinery, spare parts, and ancillary industries.5. The fertilizer sector is highly regulated and controlled. For example, The urea sector works on the normative cost-plus-return framework, with controls on farm gate prices, distribution and gas allocation. In the last few years, due to a rigorous process, there is a recurring backlog of subsidy. Instead, if government allocates the required fertilizers in one-time clearance, this will be the key to the financial health of the produce. 6. Basic exemption limit may be increased to 5 lakhs, the reintroduction of 10% slab for income up to 10 lakhs, 15% for income up to 15 lakhs and 25% for income above 15 lakhs.While we summarize our Wishlist, we still hope this budget will be justice to all the small business in the country and also a pavement for them to become a part of India’s larger growth story.