Nithin Kamath, the CEO and founder of broking firm Zerodha, on Sunday raised concerns on Indian start-ups incorporating outside the country and called it a "disturbing trend".
Kamath expressed his views on the subject in a series of tweets. "New startups building for India but incorporating outside India is a disturbing trend," he wrote.
While most of the start-ups are funded by foreign venture capital firms, they create wealth in India through founders, angels and their employee stock ownership plans (ESOPs), the CEO said.
Since most start-ups are now prioritising growth over profit, there's typically no income tax in India, Kamath said. However, with start-ups incorporating outside India, wealth creation and capital gains are also captured outside.
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He used a dialogue from Shah Rukh Khan's movie Swades to describe the situation, "Apni chaukhat ka diya, giving light to neighbour's house."
Kamath urged the government to take steps so that Indian start-ups are incorporated in the country. While it is impossible to ensure that there is no tax arbitrage by incorporating outside, he said the government should do whatever it takes to improve on the 'ease of doing business' and create reasons for foreign investors to nudge founders to be incorporated within India, not outside.
In 2019, for the third consecutive time, India ranked among the 10 top improvers in the World Bank's flagship 'Doing Business' 2020 report. From the 77th rank in 2018, India jumped 14 places to the 63rd position in the report released in October 2019.
Kamath is known for sharing his views on Twitter. Recently, he had said that the ups and downs in a company's valuations can be mentally taxing to explain why Zerodha is conservative about its valuation.
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