Is Regulating IPOs Necessary?

Indian startups face a critical decision: should they register their business in Singapore? Numerous Indian startups have registered holding companies in Singapore to take advantage of increased funding opportunities, a tax-friendly environment, and stable economic policies. While the Securities and Exchange Board of India’s (SEBI) rules appear to preclude loss-making startups from listing on the National Stock Exchange (NSE), Singapore does.

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Over 99 per cent of Singapore’s imports are duty-free. Singapore is ranked second in the “Ease of Doing Business” category, while India is ranked 63rd. Singapore is ranked fourth in the Global Competitiveness Index, while India is ranked 43rd. Local Indian companies pay a whopping 30% corporate income tax, while Singapore charges a flat rate of 17%. Singapore’s zero capital gains tax sounds like entrepreneurial heaven compared to India’s 15-20% capital gains tax. Additionally, Singapore is a generally duty-free port, having entered into a bilateral tax treaty with India in 2005.

Additionally, startups seek registration with Singapore’s regulatory authority, ACRA (Accounting and Corporate Regulatory Authority), due to the ease of registering a company. In comparison to our 15–21-day registration process, it only takes 24-48 hours via an online portal.

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India’s startup ecosystem is maturing. Investors are increasingly willing to invest in loss-making businesses, assuming that they will become profitable in the future, a true sign of a maturing ecosystem. As a result, easing regulations governing initial public offerings is critical. Currently, due to regulatory restrictions and requirements, initial public offering documents are required to disclose all associated risks without adequately balancing them against the future potential of the company’s success.

A high capital gains tax discourages investment in job-creating financial assets in a growing economy. Indian investors risk missing out on billions of dollars in wealth creation if SEBI does not encourage startups to list in India rather than abroad.

Another reasonable expectation for the Union Budget 2022–2023 is tax cuts to encourage businesses to invest in employee wellness programmes and corporate health insurance. At the moment, if a business purchases health insurance for its employees and pays GST to insurance companies, the business cannot claim input tax credits or a GST refund. Companies are more conscientious about spending on employee wellness due to the additional 18% tax. It appears that businesses are being penalised by the government for not receiving rebates. Particularly in a post-pandemic world where corporations are accountable for providing their employees with the best possible health benefits.

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Finally, how can we incentivize India’s best research, talent, and professors? At the moment, we lag significantly behind China and the United States in terms of patent filings. As a result, we lost our best engineering minds to the United States, which conducts the most high-level research. The government should strengthen higher educational institutions through the implementation of policies. Why is it that most of the best B-Tech graduates from IITs prefer to attend foreign universities?

To put it mildly, the research opportunities available abroad are significantly superior. To stem this talent exodus, the Indian government must foster incubators, and the Indian private sector will quickly follow suit, investing vast sums in research. And for this research-first approach to be implemented, our government must act as a catalyst.

Allowing credit where credit is due, the Indian government has made significant contributions, most notably through the prudent exemption of Angel Tax. This relief encouraged significantly more investor diversity in 2019, resulting in a 93% increase in the number of startups eligible for angel tax exemption in 2021. However, this is just one exemption—among many others awaiting implementation and intended to provide a reprieve for Indian startups.

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