The financial budget for 2017, in order to make the process of setting up startups and survival in the Indian business market conducive, allowed startup companies to pay tax only for three years out of a seven-year period if only they make profits. The move of providing income tax holiday to startups was meant to promote startup ecosystem in India. The finance minister, while giving much relief to the MSME sector, announced the reduction in the tax rate from 30% to 25% for the companies with an annual turnover of less than INR 50 Cr. The budget also provided a tax cushion to small businesses and startups with a turnover of up to INR 2 Cr, by reducing the presumptive tax rate to 6% of the total turnover. Earlier, this rate was 8%. However, the tax relief was given conditional on the fact that the gross receipts must be received through digital means. Though refusing to bulge for the demand for the abolition of Minimum Alternate Tax (MAT), the finance minister allowed logistics service companies in India to carry forward their MAT for a period of 15 years from the present period of five years. For the purpose of carrying forward of losses in respect of startups, the condition of the continuous holding of 51% of the voting rights has been relaxed subject to the condition that the holding of the original promoters continues. This budget also actively promoted digital transactions in order to make India a less-cash economy. Overall, a policy thrust was given to increase digital footprint in the country by capping transactions and by financially incentivizing digital ones.
One announcement in the last Budget that roused a good deal of excitement in the startup space was that logistics service startups, like Logistics Junction, HipShip, and young logistics companies like Delhivery and Shadowfax, were allowed to use railways for end-to-end solutions. The logistics sector includes road transport - comprising small businesses, truck services, and large transport companies - the warehousing sector, and third-party logistics companies, both big and small. With the growth of technology and digital commerce, logistics has a stronger role than ever before, and naturally, the focus on it is greater. Some fresh hopes of the startup logistics companies, especially in Pune and Mumbai, are as follows-
1.Better representation of issues and a seat at the table in the ministry- The recognition of logistics with industry status was a major milestone for the sector. We expect to see a lot of sector-specific policies, and better representation of our issues, more importantly, a seat at the table in the ministry. It is still early days, but the path has been laid for the logistics service sector development.
2. Increase allocation for infrastructure and agriculture- The key expectations are to increase allocation for infrastructure and in agriculture. If this happens, both the outbound and inbound logistics sector will benefit going forward as domestic consumption is rising.
3.Reforms, rules, and taxes for the e-commerce industry- With the emphasis on the data penetration boom, e-commerce is a major opportunity for the entire logistics industry. The upcoming budget will see reforms, rules, and taxes being framed for the entire e-commerce industry, which, if done properly, can boost the entire logistics sector, augmenting revenue from online truck bookings, lorry bookings, and freight bookings. A populist FY19 budget? The 2017-18 budget was balanced, industry participants say, and did not cater to populist demands. However, if the fear of a populist budget this time comes true, one can expect an increase in indirect taxes, huge waivers of agricultural and SMEs loans, and higher government spending on agriculture, and textile industries.
4.The growth of Logistics- Cost of logistics services in India is higher as compared with the US and China, and India can save close to $50 billion if logistics costs drop to 9 percent of GDP from 13 percent now. This, in turn, would also bring down prices of products. Between 2010 and 2015, all logistics subsectors saw a decline in profitability. The average operating efficiency during the period was seven percent for the road transport sector, and 20 percent for the storage sector. In 2017-18, the government initiated several public-private infrastructure projects with major players which have led to faster execution, the creation of a stable ecosystem, and a boost to the job market, and the economy.
Indian Logistics Sector has been consistently on upward trajectory registering a CAGR of 9-10% in the last few years. Government’s infrastructure push to accelerate economic growth and better operational efficiency due to a larger use of digital technology especially by online logistics companies in India have been the two major drivers of growth for logistics sector. Recognizing the promising potential of the sector, the government has recently given infrastructure status to it. Further, the implementation of Goods and Service Tax is also going to have a favorable effect on logistics sector due to the removal of the multiplicity of taxes levied by states and the central government making interstate commercial transport smoother. However, at 14% GDP, the logistics sector in India still suffers from one of the highest logistics cost in the world. The sector is expecting from the government to bring down this cost in order to enhance global competitiveness while keeping up the infrastructure push. Further, in terms of policy, the logistics startups are making a demand for the government to formulate an integrated transportation policy to ensure efficient and smooth transportation of the goods.