Bringing Esops (employees’ stock option) under the Fringe Benefit Tax has been criticised on the grounds of double taxation, but another and perhaps more serious, fallout maybe the disincentive it means to entrepreneurship.

Ashutosh Pande is a typical beneficiary of the success of the global technology boom of past decade. At 30, he left his job at the Japan Radio Corp and set up his own company in Texas, US. But what went in as investment for his company, and what was possibly the single most important factor that enabled him take the risk, were the stock he had from a previous employer, Intel.

And Pande is not the only example. In fact, more than half of all technology start-ups have founders who got financially secure with stock options and decided to take the high-risk plunge into entrepreneurship.

One example at home is K Srinivasan, who set up AllGo Embedded Systems in Bangalore in 2005. “ I had stock options of Motorola which gave me the financial independence to set up my own company,” he says.

Tapan Joshi, vice-president of marketing at e-Infochips says the reason so many entrepreneurs came out of the Silicon Valley was that they got rich with stock options before going on their own. “This is a trend just beginning in India, and taxing stock options will discourage it,” he says.

That is because, Joshi says, the tax may discourage companies from offering stock options to employees.

Moreover, Esops are an important tool that small companies and start-ups use to attract talent. In fact, industry analysts say that the real disadvantage is to the small- and medium-sized enterprises.

... contd.