Economic Survey 2023 calls for simplification of taxation, ESOPs to accelerate ‘reverse-flipping’ of start-ups

Economic Survey 2023 released by the Ministry of Finance revealed that to accelerate reverse-flipping or inspire start-ups to shift their bases to India, several steps can be taken up. Some of the them include simplifying the process for grant of “Inter-Ministerial Board (IMB) certification, simplify multiple layers of taxation, employee stock ownership plans (ESOPs), and more. 
 
The survey which was released on Tuesday morning said that start-ups have been found to be “flipping”- a term which is used to describe companies that set up headquarters in overseas locations, especially in destinations with “favourable legal environments and taxation policies.” This process results in transferring the ownership of the Indian company to an overseas entity. 
 
While flipping is common as early stage start-ups venture out for short-term gains, this trend can be reversed (called reverse-flipping) when the government, regulatory bodies, and other stakeholders of the ecosystem come together and take collective action, the survey mentioned.  
 
It also stated that India can take inspiration from countries like the United Arab Emirates, Singapore, US, and more in terms of taxation structures and corporate laws to enhance the ease of doing business in India. 
 
“Many countries, such as the US and Singapore, have easier corporate laws, with lesser restrictions on the inflow and outflow of capital and treatment of Hybrid Securities,” this year’s economic survey read. 
 
It also noted that collaborations and partnerships with established private entities can be explored to develop best practices for start-ups and some mentorship programs as well. 
 
Reverse-flipping is gradually happening, the survey pointed out. An example to look at is fintech major, PhonePe. Sameer Nigam, Co-founder and CEO of PhonePe said at a YouTube session recently that the investors of the Flipkart-owned digital payments firm paid Rs 8,000 crore in taxes to shift its domicile to India from Singapore. 
 
India houses one of the largest start-up ecosystems in the world. The Economic Survey called ‘start-ups’ as the spine of new India. Data revealed that the number of recognised start-ups has increased from 452 in 2016 to 84,012 in 2022. Additionally, the survey said that Indian start-ups inspire youth to be ‘job creators’ rather than ‘job seekers.’ 
 

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