Valuation norms for foreign investors likely in a fortnight
NEW DELHI : Taxation of share premium in unlisted businesses, an anti-evasion provision introduced in the tax law more than a decade ago to tackle corruption, has over the years become a key concern for startups, with the industry waiting to see how its expanded scope will be implemented on the ground. The finance ministry is set to come out with the final version of the five extra valuation methods for foreign investors in about a fortnight to ensure the worth of unlisted companies is accurately assessed for tax purposes after public consultation of the draft rules in May.
An investor in several companies said founders of startups negotiate with potential investors to raise capital based on the future worth of the enterprise, not the present one so that his equity dilution in the company is less. For the same amount of capital raised, founders may have to let go of a larger pie in the company when valuation is lower.
“The angel tax provision definitely is a dampener for startups," the person said on the condition of anonymity. However, government officials do not feel the same.
“Potential investors are not naive enough to put money on the table just because startup founders promise the moon. If they find worth in the enterprise, it will not be that hard to explain the value to the tax department as well," said a tax official, who spoke on condition of anonymity.
In an interview published by Mint on 16 July, revenue secretary Sanjay Malhotra said the government’s effort is to allow genuine investments and, at the same time, to ensure there is no money laundering, round-tripping of funds, etc. Besides, the methods given for fair valuation take into account the growth prospects of companies, Malhotra then explained,
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