Drive to digitalisation: how tax incentives give tech start-ups a leg up

For the most part, all it takes to start up a tech company is a proper internet connection, a computer and a vision, but digital technologies and tech start-up companies have been at the centre of the worldwide digitalisation movement since its inception. Products like Zoom and Netflix have become viable solutions which addressed the need to entertain ourselves and interact with each other for work or school, especially in the time of covid19, where people were forced to keep their distance and stay inside.

Locally, the pandemic accelerated government’s drive to digitise Trinidad and Tobago, so much so that ordering food, arranging for transport and even accessing medicine can now be done online. The need to both stay apart and stay in contact with each other has provided a gap which companies like CtrlAltFix Tech led by Ishmael Moreno were more than able to fill.

So the announcement by government to give tax incentives to start-up companies that specialise in digitisation and technology solutions was not only welcome to all stakeholders involved in the industry but it served as a great motivator to young tech graduates seeking to start their own businesses in a region that, prior to covid19, was a little more than sceptical over the viability of tech companies’ ability to enhance business.

But what is needed now is further support – not only from government and the private sector, but from the public in general.

Digitisation incentives for the start-ups

Finance Minister Colm Imbert first announced government’s plan to provide tax breaks to start-up companies specialising in digital solutions at the reading of the 2021-2022 budget on October 4. Taking effect from January 1, the tax incentive would give the companies a 50 per cent tax exemption on the first $100,000 of chargeable income for its first year, and for the first $200,000 for the second year of operation.

Moreno, whose business assists people develop their own retail spaces online, said the incentives would encourage more people to go into the digitisation industry.

“Once you have the skill set, it takes very little to start,” he said. “The costs accumulate over time, so the exemptions would actually help a lot so that you wouldn’t have to spend as much in deductions. So it would help especially companies now starting up.”

Stacy Williams, senior lecturer in the department of information science and technology at the College of Science, Technology and Applied Arts of TT (Costatt) told Business Day the tax incentive was a step in the right direction.

“It would help getting people who want to start a tech company more motivated,” she said. “It acts as an incentive. Most students would say they could do this just because they believe that it is a good field and it is something that people would support.”

Even larger companies like Microsoft applaud the measures taken by government to encourage start-up companies. Segment director of Small/Mid-Market Solutions and Partners for Microsoft Darren Mohammed told Business Day that they support the move.

“With the right skills, incentives and partnerships, we can recover and move forward,” Mohammed said.

Trini technophobia

The recent interest in digitisation did not come easy. In fact, it took the pandemic to open the eyes of many and steer them away from person-to-person business and toward digital solutions.

Prior to covid19 it was very difficult for tech companies to get their foot in the door, Williams said.

“It was really a struggle to get people on board,” she said. “It was a struggle to get into meetings and get appointments. It was a struggle to get people to listen when developers said this function for your business could be done easier if you put everything online.”

She said the reluctance to give these tech companies opportunities came from a lack of knowledge of how these companies worked, how they handled information from their clients and a general fear of the unknown when it came to digital business solutions.

“There was a concern over security and some lacked the knowledge about how these companies worked,” Williams said. “So they would think that when you make a purchase online or use your credit card everyone would be able to see it and someone could take it and run away with their money. But those things have several security measures.”

But when covid19 hit TT’s shores in March 2020, it presented a problem that businesses were not prepared for – combating the virus meant not meeting with customers and employees face-to-face, which was the way most businesses operated prior to the pandemic.

Businesses and individuals alike now had to take the leap of faith and buy into the digitisation movement.

“Over the past two years people have become more accepting of technology. I think it is a matter of not having much choice right now. It is either get on board or get left behind,” Williams said.

“The pandemic accelerated the pace of digitisation across the region and in TT,” Mohammed added. “We have seen all businesses from large enterprises to SMEs move quickly from in-person interactions to digital channels to give customers contactless access to their goods and services.”

As a result there was a near immediate increase in the need for tech companies to take part in the emerging digital economy.

To support companies in meeting the growing demand, Microsoft assisted by providing cloud technologies like Microsoft Azure which allows start-ups to take advantage of large-scale infrastructure, computing power, artificial intelligence and enterprise-grade security, so their businesses could grow quickly.

Also through its digital skills initiative Microsoft provided several free courses on Microsoft Learn, and LinkedIn Learning platforms to help close the skills gap caused by the rapid pace of transformation to digital solutions.

“We targeted in-demand skills like software development, digital marketing and others, using data from LinkedIn, the largest professional community platform.”

“Helping small companies aligns with our mission to empower every person an organisation on the planet to achieve more,” Mohammed said.

Williams said some of the key areas that opened up for digital tech companies included e-commerce and providing websites and applications to businesses.

“Even big companies like Courts, Standards and KFC have gone more online,” she said. “Now smaller companies get more collaboration because once you build a system, you could come in, do that job and maintain it offline. It may not be financially viable for a company to have its own web developer on site. They could outsource them and do the regular maintenance.”

Tech companies need back up

Although tech companies have much needed support which has resulted in huge growth in the industry that was not seen two years ago, TT and the Caribbean as a whole are still far behind in the digital race.

But the problem is not infrastructure, education or talent, Williams said. What TT and the region needs to keep pace with digital leaders like China, is for more people to buy into the idea of digitisation.

“In terms of education we are on par with the largest companies,” Williams said. “Our students are in high demand. A lot of Trinidadians go all over the world to work for companies like Google and Microsoft.”

“Maybe it is the acceptance of new technology,” she added. “It is more about the culture and support of digitisation.”

Moreno said that while government’s tax incentives could go a long way in assisting people already in the digital technology industry and could encourage people interested to get into the industry, more support in the form of ease of doing business is needed.

He said just like brick-and-mortar businesses, digital businesses are plagued by bureaucracy that makes doing business with government difficult.

“The region is not where it should be,” he said. “What is needed is more involvement with government and openness to collaborate with smaller companies. Once it is seen that it is easier to collaborate with government and there isn’t so much bureaucracy, things will move forward.”

Government's digitalisation initiatives:

• 50 per cent tax exemption for companies on the first $100,000 chargeable income in the first year, and on $200,000 in the second year.

• Strengthening of the Single Electronic Window for Trade and Business Facilitation

• Modernisation and re-purposing of eTecK as a facilitator of commercial development

• TT WiFi, rolled out in transport hubs and libraries, continues to provide free broadband access

• Government to partner with local developers to create apps for personal security.

• ICT access centres to continue to provide computers, internet access, training, printing and scanning services

• Broadband services to be provided to underserved communities

• Legislative framework for the production, innovation, delivery and export of digital goods and services

• Digital Developer Hub to collaborate with private sector to establish a platform for development of software and applications which meet global standards

• Digital wallets to be introduced for safer and faster transactions

• Technical Skills Training for cybersecurity, blockchain, 5G and other proprietary software.

• A national digital ID to be established.

• Tax exemptions for digitisation and tech companies