Commercialisation And Sovereignty: The Dual Pillars Of India's SpaceTech Ambitions

Sending the controversial angel tax provisions, which sought to levy a steep tax on share premiums on issuance of shares, riding into the sunset would be a significant boost to investments.

This move is expected to further crowd-in private venture capital and to accelerate the development of cutting-edge solutions, making India a hub for space tech innovations that can be leveraged globally.

The Union Budget allocation of Rs 1,000 crore to a space tech startup funding fund also signals the government's commitment to bolstering India's space industry. 

Commercial Space Tech To Drive Growth

Commercial success in space tech will drive economic growth, attract international investments, and create high-tech jobs, thereby strengthening India’s overall economy. Moreover, a robust commercial space sector will enhance India’s competitiveness, enabling it to offer cost-effective solutions in the global market, such as satellite launches and space-based services.

This will position India as a preferred partner in international collaborations and contracts. Simultaneously, achieving space sovereignty will ensure that India maintains control over its critical space assets and technologies, safeguarding national security and strategic interests. 

The Indian space sector has immense economic potential, estimated to be worth Rs 35,000 crore, about 8 per cent of the global share by 2033. To do more, public-private partnerships are pivotal to scaling up Indian SpaceTech ventures across the world.

This synergy has already begun to bear fruit, with several private companies making significant strides in satellite launches, space-based services, and ancillary technologies.

For instance, companies like Skyroot Aerospace and Agnikul Cosmos are making headlines with their advancements in rocket technology and satellite launch capabilities. 

ISRO Playbook Gives Competitive Edge

First, the cost-effective nature of India's space missions that ISRO has made a playbook of, provides a significant competitive edge.

The government's funding initiatives can further amplify entrepreneurial drive and private capital, providing the necessary resources for startups to scale their operations and compete on a global stage.

Situated close to the equator, India can leverage this position to conduct more efficient satellite launches, as a preferred destination for space missions.

Space technology is a critical race for a better humanity, with far-reaching implications that extend well beyond mere scientific achievement. Earth observation technology, for example, has found critical applications in agriculture, including crop insurance, yield monitoring, and disaster management, enhancing food security and sustainability.

It also plays a vital role in biodiversity conservation, natural resource extraction, mining, and urban development, providing essential data for informed decision-making and sustainable practices.

Similarly, SATCOM-as-a-service has the potential to revolutionise connectivity, offering in-flight and remote area communication, DTH broadcasting, and significant improvements in healthcare through tele-health and tele-education.

This technology ensures that even the most isolated regions have access to vital services, bridging gaps in education and healthcare and contributing to social equity.

A comprehensive approach to data aggregation and analysis of space-based data, combined with a cross-sectoral and cross-segment strategy, holds immense business potential for addressing real-world challenges.

This approach can unlock value that was previously considered unattainable, transforming industries and improving lives. The government's role as a catalyst in this process is crucial. 

Further, the government can create a competitive environment with clarity around the taxation and regulatory regime. Recent liberalisation of the FDI route to the space sector is a step in the right direction.

Taxation Puzzle In Space Business

On the tax front, depending on the business model and the physical location of the satellite or network of satellites, the tax implications could vary. Attempting to tax profits generated by such evolving business models could test the limits of sovereignty.

Where satellites are in outer space, it is akin to taxing activities on the high seas as according to international treaties no country has a sovereign claim over outer space. 

Many international and domestic tax concepts are not designed to fit such activities as they rely on foundational principles such as physical nexus and sovereignty. This is further exacerbated by the fact that it remains unsettled as to where sovereign territory ends and where outer space begins.

Add to that the fact that low earth orbit stations are effectively islands outside any country where companies could be potentially controlled or managed in the future, which means you could have stateless companies and people who are not tax residents anywhere.

Further, the carrying out of significant activities outside the territorial jurisdiction of most states may also over a period of time strain the ability of tax authorities to monitor activities for any tax evasion and enforce taxes appropriately. 

The sunset of the 2 per cent equalisation levy in the current budget is a welcome move as much of the space economy in India is likely to be in the form of SAAS or digital services which could be subject to foreign digital services taxes, which hopefully the world will move away from.

As the industry grows and becomes profitable the tax lens will magnify these issues. A consultative approach with industry and other countries to align on the regulatory and tax approach to this sector will be essential. 

(Dr Srinath Sridharan is Mumbai-based researcher and corporate advisor. Meyappan Nagappan is a partner at law firm Trilegal. Views expressed are personal)