Tax arbitrage between dividends and selling a stake and startup profitability
Can the tax arbitrage that exists between earning through dividends(~52%) vs earning through selling a stake (~24%) be the reason why most new-age businesses are not profitable? I think so. Money is like a river, it flows where the conditions are conducive to its flow.
The Govt capping the surcharge on LTCG when investing in unlisted companies to encourage investments in startups in the budget is a welcome move. But maybe the tax arbitrage shouldn’t be so large that everyone just focuses on valuations and not on profits & sustainability.
We need all types of businesses. Companies that aggressively spend on growth (apart from Google, FB, ads) which is plowed back to the economy; and companies that focus on profitability and being resilient, and help the economy even if the growth stops for a bit.
We had shared this post on the Rainmatter blog which we’ve updated post the recent change in LTCG taxation for unlisted securities in the budget.