The Finance Ministry is likely to announce beneficial tax treatment to brand building expenses of startups. In other words, there will be a differential tax treatment for the building of brand image by a startup. This comes on the heels of the recently announced tax exemptions under the Startup Action Plan.
This initiative is directed more towards the e-commerce companies, to help them build a brand image by incurring appropriate expense towards the exercise. In accordance, they will be entitled to accounting benefits over several years of effort.
This development will prove very fruitful for many startups and e-commerce companies, which are always on their toes to acquire new customers. The e-commerce sector has been cluttered with companies emerging at a rapid pace, and there is a need to break through the competition clutter. Their maximum investment is in building the brand which is an intangible asset.
KPMG (India) Partner Tax Amarjeet Singh told the Press Trust of India, “The AMP expenses are critical for e-commerce companies to acquire new customers. A significant part of this cost is intangible, and the government should allow identified category of AMP expenses to be capitalised”.
There is a slew of tax benefits measures expected to be announced in the forthcoming Budget, Finance Minister Arun Jaitley in the 2016-17 will be presenting the Budget on February 29.
Another measure likely to provide relief to e-commerce companies is regarding the matter of withholding taxes. Currently, 10 percent of payment as tax can be withheld by any corporation. In the initial years of its operations, an e-commerce company is likely to incur losses. Therefore, it is required to consider withholding tax on the commission received by them. This move will also help in ensuring a smooth cash flow initially for e-commerce companies.
The government has been laying emphasis on providing tax sops for the startup sector, as well as reducing the administrative burden on this sector. While ensuring an ease in compliance regulations, and introducing electronic governance initiatives, withholding tax compliance will go a long way in ease of doing business in India.
