Startup amnesty policy needs to be simple and easy: invest in Startups and get away with questions on money trail, sources of income and so on. As simple as that. Startups need to be registered, domestically-domiciled with a bank account, and independent of investors (no relations in case of an amnesty investor, as investor should not be allowed to create Startups as vehicles just to whiten black money). Investment should not be more than 30% per party (to keep the sanctity of the capitalization table in tact), best would be to capture this money through a dedicated Amnesty Fund, which then invests purely in Startups, primarily tech-driven Startups in the country.
Further, black money coming through Startups should be taxed for income only (CGT, dividends) while white money should be rather tax-incentivized that invests in Startups (no CGT, with single layer standard dividend tax only).
Minimum ticket size could be allowed to start from US $50,000 or PKR 10 million to avail the amnesty for Startups, with no limit to maximum ticket size to be whiten by investing in Startups. However, the definition of a Startup needs to be developed for a structured approach and proper documentation by the regulators.
How about a ‘Startup Amnesty’?—I
If we like to give a way for black money to come into the formal system, why not channelize it into productive areas and schemes than conventional means and sectors. The amnesty money needs to support the new knowledge and innovation economy at least, instead of the same old rent-seeking and non-productive ones as well as those health-damaging sugar, cigarettes, and aerated beverages, amongst others, not to mention least productive real estate sector.
In fact, it would be even better to make Startup investing totally tax-free for investors and Startups alike for few years to help attract investment towards innovation economy as such, and for Startups as well so they could reinvest their tax savings into R&D, new technologies and talent to create more value, achieve higher sustainable growth through innovation by developing global applications and scalability for sustainable export earnings for the country.
Investment in Startups will address many problems with this amnesty idea: it will support young entrepreneurs with much-needed capital at early stages, help uplift new ideas with tech-driven lean businesses bringing innovation and efficiencies to the economy alongside supporting development of intellectual capital (talent pool), and more hands to give (invest) thereby driving demand for Startups, thereby bringing equilibrium to the demand-supply gap of Startup market where at the moment only a handful of capital providers are talking only their terms while even best of the Startups are at the mercy of capital providers.
As per Alpha Beta Core, Pakistan Startup ecosystem attracted over US$ 375 million in 2021, which was double the size of investment attracted in the last 6 years combined. A carefully designed and a well-planned amnesty scheme dedicated for Startups is expected to easily bring in over a couple of billion dollars for a year to set the pace in.
(Concluded)
(The writer is an Investment Banker and a Policy Advisor; running an advisory shop advising Startups, established businesses and the government in various capacities. The views expressed in this article are not necessarily those of the newspaper) He can be accessed at:
Email: khurram@alphabetacore.com;
LinkedIn: https://www.linkedin.com/in/khurramschehzad/;
Twitter: @kschehzad
Copyright Business Recorder, 2022