MUMBAI: Startups have asked the government to provide clarity on key tax issues, including ‘significant economic presence’, equalisation levy and tax on employee stock ownership plans (esops).
The companies raised these issues during a recent meeting with finance minister Nirmala Sitharaman and senior tax officials, according to a member who took part in the meeting. Startups that deal with global technology companies registered outside India claim they pay more taxes on their revenues,Startups are required to pay 18% Goods and Services Tax (GST) under the reverse charge mechanism, and a 6% equalisation levy.
that deals with an entity registered abroad has to bear GST under the reverse charge mechanism. Once GST is paid, startups can claim credit, but since they do not have enough output to set off the credit, it becomes an issue.
Under GST, input tax credit is a mechanism through which GST paid by a company can be set off against future tax liabilities.
Startups have also sought clarity around significant economic presence and 6% equalisation levy, a tax applicable on online advertising.
Tax experts say the government may be looking to increase the gamut of equalisation levy. “India currently has an equalisation levy on online advertising. We don’t expect India to reduce the levy. In fact, the coverage could be broadened to include other services as well,” said Amit Maheshwari, partner, Ashok Maheshwary & Associates LLP.
Startups have also urged the government to mandate that foreign companies with a direct presence in India must be required to invoice its customers in the country itself through local entities. This is expected to help mitigate the GST problem, as the Indian entity of the foreign company will be required to bear the taxation cost.
Startups are also seeking clarity from the government around esops and how they should be taxed.