Startups Can’t Avoid Tax Payments to Come Back to India, Piyush Goyal Warns

According to reports, Piyush Goyal, the Union Commerce Minister, emphasized on Friday (March 29) that Indian startups considering reverse flipping must be prepared for tax responsibilities. In a statement to The Economic Times, Goyal expressed skepticism about granting tax exemptions to certain companies solely for relocating to India. He pointed out that it’s challenging to justify such exemptions. Goyal placed the responsibility squarely on startups, suggesting that many local companies chose to relocate abroad out of their own self-interest rather than a sense of goodwill towards the nation. He characterized their return to India as motivated by self-interest rather than altruism.

Related: Union of Cabinet Approves Rs 10372 Crore Mission to Accelerate AI Innovation

These companies chose to relocate primarily out of self-interest rather than external pressure or other factors. Their motivation stemmed from a desire for more favorable tax arrangements, which they found appealing. Their intention to return isn’t necessarily driven by altruism. Instead, they’re drawn to listing in India due to the attractive valuations available here. India’s remarkable growth trajectory sets it apart globally, making it an enticing destination for them.

This shift in perspective comes at a time when numerous Indian unicorns, such as Zepto, Groww, Meesho, Pine Labs, Razorpay, and Eruditus, are contemplating the prospect of bringing their headquarters back home.

In the meantime, Goyal also pointed out that the tax payment (due to reverse flipping) would come from the income where startups initially enjoyed tax savings.

“Imagine this: when they contribute taxes, it actually benefits us all. We can use that money to offer more scholarships to underprivileged children, or to construct homes for those in need, or even to upgrade shantytowns into proper housing. We’ve got big plans for our nation, and the taxes they’re contributing come from the income they previously saved taxes on,” Goyal shared with ET.

Discussing the matter of angel taxes, which directly affect budding startups, the minister highlighted the importance of implementing valuation norms. These norms were introduced to curb the activities of “fly-by-night companies” involved in hawala transactions or the manipulation of capital.

The minister emphasized the necessity of such measures by stating, “This is why taxes were introduced… and valuation norms must remain in place.” He acknowledged the indirect impact on startups, emphasizing the need for a delicate balance. “If we were to completely relax regulations, we might solve the startup dilemma, but it would likely revive issues of another kind,” he remarked, stressing the importance of finding equilibrium in regulatory measures.

At present, a number of Indian startups, originally based in the US and Singapore, are contemplating a return to India to pursue their IPO aspirations. Consequently, many of these firms are urging the authorities to streamline regulatory procedures and lessen tax burdens for those considering such a transition.

The spotlight fell on this issue towards the end of 2022, following PhonePe’s decision to relocate its headquarters back to India, backed by Walmart. Notably, the digital payments leader paid $800 million in taxes to the Indian government. This move came shortly after PhonePe was spun off from its parent company, Flipkart, emerging as an independent entity.

Union Commerce Minister Piyush Goyal cautions Indian startups considering reverse flipping about tax responsibilities and disapproves of granting tax exemptions solely for relocating to India. He emphasizes that many companies relocated abroad driven by self-interest, primarily seeking favorable tax arrangements. Goyal emphasizes the positive impact of tax contributions from returning startups and advocates for maintaining valuation norms to curb illicit financial activities. As numerous Indian unicorns contemplate returning for IPO pursuits, calls arise for streamlined procedures and reduced tax burdens. The relocation of PhonePe’s headquarters back to India, backed by Walmart, underscores a significant tax contribution and its corporate independence post-spinoff from Flipkart.Top of Form