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Budget 2014 Reactions: online service tax, E-commerce, startups online insurance, manufacturing,

Lots of reactions in, following the NDA government’s first budget, announced yesterday. A few positives, but one major dampener is the introduction of service tax on online and mobile advertising, which would significantly harm publishing and advertising startups. Some of the reactions below have been clipped to remove fluff, and for brevity:

On mobile handset prices
– Ajjay R Agarwal, CMD, Maxx Mobile: “We do not expect the budget to impact the consumer prices of mobiles phones. The 3% education cess translates into an additional duty of just 0.18%, which will not impact the prices of imported phones significantly. However, we are still studying the details of the budget to determine the exact impact on the pricing.”
– Aditya Agarwal, Director and Co-founder ICE (smart phone and tablet brand): The FM has removed SAD for tablet components, which means lesser tax related complications for companies. Earlier, we were supposed to claim a refund on SAD after the components have been used for manufacturing or assembling. The refund process was not only complicated but time consuming too. Removal of such a tax component is a step in tax simplification direction.

The online insurance industry:
Yashish Dahiya, Founder and CEO, Policybazaar.com: 49pc is good and in line with expectations. Common Demat and common FDI for finance sector will be a great boon for the insurance and mutual fund industry. Banking has adequate participation and KYC which should just be extended to allied financial sectors.
– Alok Bhatnagar, Co-founding CEO & MD at Easypolicy: The increase in 80C savings would ensure that some portion of the savings at least would go in buying more Insurance and it would help in growing the sector. The increase in FDI is also going to be much positive for both the insurance companies as well as intermediaries. One of the key investor concerns that we had faced while trying to raise funds was the FDI cap of 26%. With that increased to 49%, the number of investors willing to take a look at Insurance e-commerce companies would hopefully shoot-up. However I am slightly intrigued that health insurance which looks like to be a key action area for BJP did not find a mention in today’s budget

On taxation of online and mobile advertising

Dippak Khurana, CEO and Co-founder, Vserv.mobi: The new government’s maiden budget proposes to levy service tax for online and mobile advertising which we believe will adversely affect the industry’s growth. It reflects differentiated treatment as traditional print media remains unaffected with respect to the tax purview but new digital media that is actually driving innovation will have to unfortunately bear the brunt. Currently, India’s exponential mobile penetration and app consumption patterns are driving the growth of the mobile advertising industry and this development could hamper innovation efforts of the entire ecosystem comprising of mobile development start-ups, advertisers and publishers. While the budget is in favour of small scale set ups and entrepreneurs, the provision for taxation is contrary in nature for budding developers and publishers.
– Neeraj Roy, MD & CEO, Hungama: The aspect of bringing back online advertising into the service tax ambit, whilst it is still a fledgling segment, is therefore almost a conflicting action and not a welcome move.
– Ritesh Dwivedy, Founder/CEO justeat.in: Steps like service tax on online and mobile marketing are going to hurt the internet and online start-up companies in short term. But, I see this in the context of India having one of the lowest tax to GDP ratio, an anomaly that budget 2014 recognizes and intends to correct.
– Vijay Shekhar Sharma, CEO, Paytm: Given a choice, I will like to say that service tax on online and mobile advertising is an unexpected move by the government and something that is detrimental to the service industry – particularly startups. This will increase costs for startups and digital economy companies as a lot of services are leveraged by these companies. Similarly one person companies or single individuals providing a service too are affected. On the other hand the Government has removed service tax for print and that’s like promoting old world media over new world economy options. We would have loved to have a more future focused policy regarding this particular aspect of the budget.
– Sameer Shah, Co- Founder & COO, Bonzai Digital Pvt. Ltd: The plan to extend service tax on advertising in mobile phone media space is a bit unexpected since mobile advertising is a growing medium in India and is still in its nascent stage. Re-introduction of service tax in this emerging & growing sector is surprising. We will have to wait and watch the impact on growth of mobile advertising in India.
– Dr Subho Ray, President, IAMAI: It may be recalled that two years ago, this sector was kept under the negative list of service tax as a gesture of support to this fledgling industry. The legitimate expectation of this industry was that such exemption would continue for at least 3-5 years as is normally the case.

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Unfortunately, the present budget while continuing with the broad trends of the previous two budgets, has curiously decided to re-impose service tax on the industry at a time when the industry, based on the Prime Minister’s pre-poll announcements and the great support that the medium had provided to the PM personally and to the current ruling party, was expecting some more hand holding and support from the government. For the industry, this has come as a very unpleasant surprise.

Funny quote of the day:Dr Subho Ray, President, IAMAI, was hopeful that this was just a proofing error in the large budgetary exercise and once this was brought to the notice of the Finance Minister and other senior officials, this announcement would be withdrawn. “Through this communication, we appeal to the Finance Minister to withdraw the announcement at the earliest,” he said.”‘

Our coverage of the budget here.

On e-commerce
– Amazon India: The Finance Minister’s statement of allowing manufacturing units to sell their products through ecommerce platforms without any additional approvals is a positive statement of intent for the ecommerce industry. Following this statement, we are hopeful of a more positive and liberalized policy on ecommerce in the near future aimed to help grow the manufacturing industry
– Yogendra Vasupal, CEO & Founder, Stayzilla.com: We would have ideally liked to see the FDI cap on ecommerce being removed, but we understand the concerns of the government and are more than happy to participate in a public debate to help arrive at a consensus. ”
– Kunal Bahl, CEO & Co-founder, Snapdeal: The extension of railway logistics support to e-commerce companies is a positive initiative. This will reduce their reliance on surface and aerial logistics for their deliveries.
– Anurag Rajpal, Director and CEO of American Swan: Manufacturing units can sell through e-commerce platforms like Snapdeal, Ebay, Flipkart, Amazon.com etc in their current format in India, which they could do earlier as well. The budget is still ambiguous about allowing FDI in ecommerce.

On Manufacturing:
– Ajjay R Agarwal, CMD, Maxx Mobile: “The reduction in investment allowance limit from Rs. 100 crore to Rs. 25 Crore. will help in encouraging ancillary units. But, the budget does not have any specific measures to incentivize large scale domestic manufacturing of mobile phones, like increasing the duty differential between imported and indigenously manufactured mobile phones. Some more concrete steps could have been taken.”
– Aditya Agarwal, Director and Co-founder ICE (smart phone and tablet brand): The FM has announced an increase in basic custom duty for telecom products to encourage manufacturing in India. We believe that a bigger push in manufacturing will come from reducing excise duty on the same. Also, this is applicable only to very few products such as VOIP equipment and ethernet switches.

The Budget in totality is a positive budget but it didn’t give a big push for the handset and tablet manufacturing in India.

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– Sundeep Malhotra, Founder & Chief Executive Officer of HomeShop18: Uniform GST and tax measures that will play a crucial role to make e-commerce a success story in India. The move will certainly simplify the tax structure and make India one single common market by rationalizing the supply chain and thereby, offering better value.
– Kunal Bahl, co-Founder, Snapdeal: Implementation of Goods and Service Tax (GST) by end of this year comes as a prudent decision which will reduce the friction in interstate commerce. This will further lower the prices for consumers and thereby enable higher consumption and fuel growth for e-companies and small businesses who will be able to supply locally and sell nationally.

On Rural Infrastructure:
– Sundeep Malhotra, Founder & Chief Executive Officer of HomeShop18: the importance given to rural infrastructure will ease pressure and allow faster movement of goods.

For the TV industry
– Rajendra Khare, Co – Founder & CMD, SureWaves: The allocation of funds for Kisan TV, Community Radio and launch of dedicated channel for The North East are steps in the right direction. Reduction of duties in entry level television sets will help improve penetration of television from current 65% of Households to upwards of 90% to truly connect with people at large.
– Tarun Katial, CEO, Reliance Broadcast Network: the ruling on custom duties for LCD and LED televisions being completely scraped to nil, as compared to the earlier 10% will result in a significant boost in the consumption of the television sets. The decision would have an impact on converting single TV households to double TV households, resulting in an increase in the number of TV viewers, which is good for the industry.

On the Rs 10,000 crore fund for startups
– Aditi Shrivastava, Head, Intellecap Impact Investment Network: The Rs 10,000 crore corpus for startups can add significant fuel the startup ecosystem if implemented intelligently. It could also present a good evolution beyond the Rs 5000 crore fund that was announced by the National Innovation Council in 2012-13. While some may argue that Rs 10,000 crore is not a sizable corpus compared to the size of the Indian SME segment, we believe that it is a major uptick to the mere ~Rs 200 crore of total reported angel investments in India in the last 8 years. The corpus could be most effective if it can create an inexpensive debt or mezzanine solution for startups. Given the recent burgeoning of angel networks, equity is becoming increasingly accessible to startups as opposed to the other suggested instruments. Lastly, we believe that it is a big positive that the government has decided to deploy this corpus as a “Fund of Funds” instead of direct investment into startups. This means that the funds will be deployed through existing players / intermediaries that are have the expertise to evaluate and mentor startups. It remains to be seen how these intermediaries will be selected.
– Shobhit Bhatnagar, Co-Founder, GradeStack: “…I am not sure how good the government would be in managing equity investment in startups and VC funds. The focus has to be on simplifying how entrepreneurs can start and sustain their business in the initial phases. This should be more around making it easy to get a business registered, simplifying taxation and even shutting down a business.”
– Saurabh Kochhar,MD and Co-founder – Printvenue.com: the implementation of this fund is most significant. The government will need a team of highly competent individuals to identify the most deserving investment opportunities.I think helping new start ups with funds will indeed boost the morale of young entrepreneurs and soon we’ll see positive numbers in the Indian job market as well.


R. Chandrashekhar, President, NASSCOM: The Ebiz initiative, E-kranti, Virtual classroom, E-visas, Financial Inclusion Mission and many others will help to enhance technology usage in the India market. The industry would urge the government to address key challenges in the current procurement processes so that the industry can contribute optimally in this national agenda.

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On Gold

Sachin Kothari, Director, BullionIndia.in: Previous Congress led government took tough decisions to bring down CAD by restricting import of gold through various measures like 80:20 rule and import duty hikes. Hence, CAD came down from 0.9% to 0.2 %. With the CAD coming under control, there was lot of expectations from the newly formed BJP led government. However current budget has not seen any change in import duty, hence there is no respite for traders and the consumers. Slight modification on the import duty along with change in 80:20 rule was expected as it would have increased supply of the gold and given impetus to ailing bullion industry of India.

On education
– Shantanu Prakash, CMD, Educomp Solutions Ltd: – The Skill India programme is an encouraging signal indicating priority for a much needed thrust in this area. We also congratulate the Finance Minister for making a strong pitch for online education to bypass the limitations of access to schools. It is expected that both these thrust areas will receive incremental allocations in the budgets to follow and that these small beginnings in these critical areas will convert to a long term policy with budgetary allocations to match.
– Sameer Bora, EVP Research & Development, Next Education India: 100 crore budget for digital classroom seems insufficient to make any impact anywhere as this can only install a few thousand classrooms across over a million schools. In my opinion, changes to the definition of service tax exempt educational services will prove to be a burden on educational institutions. Most outsourced services that schools & colleges avail – expert lecturers / Teacher Training / Technical support services will now cost 12.36% more.

– Yogendra Vasupal, CEO & Founder, Stayzilla.com: The focus on tier 2 & 3 towns, in the finance minister’s themed tourism circuits plan is something we are very happy about. We were also pleased to see the allocations made for developing archaeological sites and other tourist spots. In addition, we find the investment being made for the development of transport infrastructure – road, rail and air – to smaller towns very heartening. – Automation of visa process, will pave way for visa-on-arrival in the near future and will boost inbound tourism. The other encouraging sign is the focus on developing North-East India as a hub of eco-tourism, we consider this a very positive development given that our own data shows increasing traction already for tourist spots in North East India over the last 12 months. In nutshell, this budget is laying all the foundations to boost tourism in our country – inbound or domestic.

Car rentals
– Gaurav Aggarwal- Founder & CEO, Savaari Car Rentals: Service tax proposed on the radio taxis would certainly shrink the market but since every sector has service tax imposed on it then why should radio taxis be left out of it is a question.

Real Estate:
– Sumit Jain, Co-Founder & CEO, CommonFloor.com: Allocation of Rs 7,060 crore to develop 100 smart cities is certainly going to promote the sector on global front. The decision to give necessary incentives for real estate investment trusts (REITs) is also much appreciated. Though, it would be given a tax pass-through status to avoid double taxation, it lacks clarity on whether DDT or capital gains on transfer of assets to REITs is exempt. The reduction in built up area from 50000 sq mtr to 20,000 sq. mtr, and minimum capitalization from 10 million to 5 million will spur a lot of foreign money into Indian real estate sector, which in turn will increase the avenues for growth. And with raised housing loan rebate from Rs 1.5 lakh to Rs 2 lakh, home buyers got a reason to celebrate too.
All this together will increase a lot of demand in the real estate sector.
– Vineet Singh, EVP and Business Head, 99acres.com: Investments for state highways, airports, smart cities, rural housing, industrial clusters, metro rails via PPP models will provide a shot in the arm for development of new real estate clusters. Setting up of modified REITs and infrastructure investment trusts will help create more liquidity for the sector. There is some reason to celebrate for home buyers as well with the tax exemption of Rs 50,000 on home loans. However, there are still a number of issues that have been left somewhat unaddressed. For instance, developers and home buyers were expecting measures to increase transparency in new project clearances and the land acquisition policy. The real estate regulation bill that was mandated to streamline processes has not been touched upon either.”

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Retrospective Tax:

– R. Chandrashekhar, President, NASSCOM: The budget proposal on proactively brining a closure to the retrospective tax issue and setting-up a high-level CBDT committee should address industry concerns. There remain certain areas of concern, which could perhaps be addressed through subsequent guidelines and/or clarifications such as those related to royalty definition, Place of Provision of Service Rules, etc. Lastly, the statements on providing a stable tax regime, reducing litigation related to tax and providing a conducive regulatory environment for start-ups and companies to establish, operate and where necessary, close businesses would help improve the business environment in the country.

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