By Devendra AgrawalFor investors: The recent Supreme Court judgment against Tiger Global may dampen the confidence of any global investor as everything agreed in the past is open to interpretation. And while that may lead to the short-term benefit of recovering taxes from one investor, in the long run it could have a negative impact on the larger investment community. They may feel that the country cannot be trusted with the laws established by the previous governments. The budget should provide clarity or simplify the laws, especially for global investors. For angel investors: Ideally, the government would release private capital for startups. The recent SEBI regulations for angel investing have increased accreditation. Earlier, all individuals/HUFs/family trusts/sole proprietorships with a net worth of more than Rs 2 crore (excluding the value of their primary residence) could be angel investors. Now, the net worth must be equal to or greater than Rs 7.5 cr, of which at least Rs 3.75 cr is in the form of financial assets (excluding the value of their primary residence). If one keeps PPP (purchasing power parity) in mind, it is ridiculously high and puts a number of people out of the reach of investing. The government should certainly make a uniform policy for accredited investors, but with fewer standards. And in the eyes of angel investors, I think the government should look at F&Os because they are even riskier and more speculative. Angel investing stimulates capital formation.Bring the sale of AIF units on an equal footing with the sale of shares. When an investor invests in an alternative investment fund (AIF), the investor receives units of the AIF. Now these investments are often illiquid and AIF units cannot be easily transferred. If an investor finds a willing buyer to transfer the AIF holding, another challenge is that the AIF holdings are valued based on the Fair Market Value (FMV).By comparison, when underlined securities, such as shares in a company, are sold, the transaction does not have to be at FMV as long as they are sold above book value.So there is a difference between the sale of IAF units and the sale of shares of underlying companies held by these AIFs.Removing this disparity could bring AIF unit sales on par with equity sales, and would increase liquidity in a situation where an investor in AB wants to sell units. This would certainly provide more liquidity and increase investor participation in alternative investment funds.This is completely according to the tax laws of the country. It’s just that the Ministry of Finance has not taken this into account in the report. The government as a provider of venture capital. The government recently approved Rs 5,000 crore in equity support for the SIDBI to help expand credit flow to the MSME sector. The government invests in startups at the rate of 6% with secured assets. To help more startups raise capital from the government and ensure that the government can benefit, the government may consider investing at a higher rate – 8% – but without a secured asset, as long as the startup is certified and thoroughly evaluated. This could help reduce India’s very high risk debt levels of 13 to 18%. For example, the government could offer a technology-driven company that has built a prototype, has an 8% return and a warrant structure. So that such a portfolio asset has mortality. These warrants will yield much higher returns even if a small percentage, such as less than 10% of these companies, become wildly successful. The government could therefore de facto become a provider of venture capital or a provider of collateral-free loans.Invest wisely in deep tech: The government recently set up a Rs 1 lakh crore fund for deep tech without having a very clear definition of deep tech. This amount is slightly on the higher side in terms of deep tech. The government could probably allocate some portion of this fund to deep tech and the remaining fund could be allocated to other avenues as well.Before taxes: We must applaud the Minister of Finance and the government for two major publications. Firstly, for rationalizing taxes to INR 12 lakh for the common man. Secondly, the GST reform. However, there are two recommendations I would like to make:a) Introduce taxation at household level. India follows an individual-oriented income tax system, where each person’s annual income is evaluated and then taxed.Introducing taxation at the household level will increase the scope for rationalizing/reducing their tax burden. Assessors should have the option to file their returns as a household or as an individual.If a household’s cumulative income is less than a certain threshold, the tax should be lower. For example, if a household consisting of a married couple – where both husband and wife earn an income – has a cumulative income of Rs 30 lakh, then the tax rate could be 20% and not the current 30%.The idea behind taxation at the household level is that the family’s ability to pay depends on shared expenses, not just individual income. This concept can certainly be explored and introduced.b) Widen India’s tax net. Less than 4% of the population pays income tax in India. This increases the tax burden on the wage-earning class, the middle class. By comparison, ~60% of US households pay federal income taxes and ~10-14% of China’s workforce pays income taxes. The government and other stakeholders must find a way to bring more working people under the tax bracket and thus reduce the overall tax burden on the salaried class. I think one way to do this might be to incentivize high taxpayers by publicly recognizing and rewarding them. (Devendra Agrawal, Founder, Dexter Capital Advisors, a boutique investment bank)
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