A large number of start-ups, small and medium enterprises view corruption and bureaucratic inefficiencies, securing loans as well as funding as major challenges in 2019, according to a report by citizens’ engagement forum LocalCircles.

The report, based on responses from over 15,000 start-ups, SMEs and entrepreneurs, found 45% respondents saying that corruption or bureaucratic inefficiencies as the top challenge, followed by securing loans and funding (37%), and business growth (18%).

“Angel tax is one area that falls under corruption and bureaucratic inefficiencies as it takes the focus of entrepreneurs away from building a product or service to responding to tax notices and filing appeals, something that start-ups can clearly do without,” it added.

Several start-ups and angel investors have raised concerns over notices received from the authorities related to taxation of angel funds. The Centre has set up a panel to look into the taxation issues faced by start-ups and angel investors. The study noted that 38% of the respondents said they had received at least one notice.

“Angel tax continued to be a key pain point for start-ups, where the assessing officers in many cases reject the valuation method used by the start-up and instead treat the capital raised as income from other sources, thereby, raising a tax demand and penalty on the start-up.”