Budget 2023: Fintech players hope for further tax relief

India now boasts of more than 7,000 plus fintech players and the majority of them are anticipating further tax relief and the Union Government’s continued focus on digital innovation. Fintech startups and other stakeholders in the fintech ecosystem expect a positive Budget 2023, and there is a broad feeling among the majority of players that the government will push for more digitally-led innovation.

Measures such as better streamlining of Digital KYC, continued focus on digital banking units and continued investment in infrastructure and new technologies such as AI and ML, blockchain, chip manufacturing, will help support the growth of the fintech industry by growing new sectors of the economy. At the same time, many players expect reduction in start-up taxes without GST till annual revenues of Rs 10 crore will further help the fintech players.

“Initiatives are expected in the digital KYC ecosystem. Digital KYC is prone to security breaches and threats, installation of security infrastructure is mandatory and costs are high, also there is a need to train staff to use different technologies for Video KYC, therefore will financial assistance for KYC compliance will be of great help,” said Sumit Chhazed, CEO and Co-Founder, OTO.

Fintech experts are of the opinion that the government’s initiative to set up 75 digital banking units in 75 districts should be continued this year as well. “The involvement of existing fintech players and especially corporate banking correspondents who are bank agnostic in operating digital banking entities will help extend necessary universal banking services to the last mile over limiting services to one bank brand and enable us to take a step further towards our goal of financial inclusion through rural empowerment,” said Dilip Modi, Founder, Spice Money. He believes that there should be a tax reduction in the upcoming budget that can help small merchants provide financial services to rural citizens. As this will help minimize the cost of providing financial services and promote deeper financial inclusion in the hinterland of the country, Modi said.

Experts expect that a strong focus must be placed on priority sector loans, and credit access should be given to those who would otherwise be deprived of the facility. “Measures should be aimed at ensuring that the market participants have enough liquidity to support new credit customers. Furthermore, the government should take necessary measures for improved partnership with banks, says Vishal Bhatia, CFO of Balancehero India.

Bhatia further observes that the budget will include supportive initiatives that will enable cutting-edge lending systems that can guarantee high-quality performance while preparing for the coming wave of transformation. “While the industry is working to provide direct benefits to personal loan borrowers in the form of tax benefits, they are demanding indirect benefits for the fintech sector to be empowered with ease of doing business. This will ensure that lenders extend these benefits to end users. The government should allocate funds to stimulate the creation of new ideas that will promote paperless digital lending and stronger partnerships. To improve customer and business experiences, credit quality and accelerate the expansion of financial organizations, we expect the government to place greater emphasis on creating digital infrastructure, Bhatia said.

Many fintech stakeholders are hoping that the government will further alleviate cash flow concerns. The sector expects tax savings by depreciating the fixed assets used by fintech companies. Consequently, significant tax breaks if given to startup employees can alleviate the problem of double taxation and reduce the financial burden that Employee Stock Ownership Plans (ESOPs) place on employees.

“The fintech sector predicts further support for improved banking partnerships that will support the existing paradigm. The experts in the field emphasized the need for a level playing field for both online and offline lenders. With this, the fintech industry is calling on the authorities to address the dire need for access to capital for start-ups and small businesses, including streamlining the process of obtaining loans and financing, as well as providing opportunities for financing through venture capital and other sources. In addition, implementing adequate rules to manage the fintech sector will provide transparency to companies in the sector and certainly help them with to manage the economy. If India fully embraces digital technology, fintech will advance more. Therefore, the government can offer smaller NBFCs and fintech companies operating in Tier-2, Tier-3 and Tier-4 locations suitable co-lending caps and rates ,” said Anubhav Jain, Co-Founder and CEO, Rupifi.

The fintech sector is also expecting some tax breaks, especially under corporate income tax and goods and services tax (GST) which is currently 18 percent. “Since the pandemic, the reduction in rates under income tax has become crucial. Broadening the tax base has been an unresolved issue that needs to be considered and assessed. We also expect some reductions in start-up taxes without GST before an annual income of Rs 10 crore. This will help SMEs to strengthen the economy The industry also requires a depreciation of the fixed assets fintech companies use to save tax.

“Last year saw a lot of regulatory disruption for fintech players, leading to less funding and business uncertainty for fintech. We hope to see more policy certainty and a level playing field with banks and NBFCs for fintechs. India has seen tremendous progress in B2C payments, but B2B payments are still archaic and need an overhaul,” said Manish Kumar, founder and CEO of KredX.

Kumar says the budget should provide opportunities to push digital B2B payments that could be faster and easier with UPI integration. One of the main expectations of the fintech industry is for the authorities to provide a more enabling regulatory environment. He feels that the fintech industry operates in a highly regulated space and any changes in regulations could have a significant impact on the industry. “The government could consider providing more clarity in existing regulations, streamlining the process for obtaining licenses and approvals, and reducing the compliance burden for fintech firms. We believe that this can help small and medium-sized businesses to build a stronger economy and contribute to creating more jobs. The budget should also focus on including measures to make it easier for fintech companies to access global markets. This could include measures to reduce barriers to entry and make it easier for fintech firms to compete in international markets, Kumar said.