CHENNAI: If the government follows through with the right policies, digital services could grow to the tune of $1 trillion by 2022, says a new report on taxation of the digital economy. The internet, according to the joint report by IAMAI and Nishith Desai Associates, is a technology space with no geographical boundaries. “Therefore, it is very important that legal and regulatory provisions pertaining to this sector are aligned to promote this open nature of the sector,” it noted.
India has achieved remarkable success in recent times in improving the global ranking in the ‘Ease of Doing Business’ but the digital industry has some specific concerns that need to be addressed to ensure the Indian digital sector reaches its full potential, it added.
According to the report, consistent and predictable taxation policies will encourage growth of the digital economy. “The digital sector is highly dependent upon investments from abroad in the form of FII/FDI and technology transfers, which often take the form of IP transfer/sharing in this sector,” it said.
Both these factors have historically been extremely sensitive to the taxation regime of the host countries as reiterated by the ‘Doing Business Report’, it noted.
Issues like online advertising and purchase or rent of license of software, other IP, cloud, scientific equipment form a significant portion of the operating overheads of start-ups, it added. Also, there could be significant difference of opinion with respect to valuation of their business and fluctuations in their shareholding. These conditions, according to the study, give rise to relatively higher tax costs.
“It is important to ensure there is ‘certainty’ and ‘clarity’ on implementation of the tax statutes. It is also important to ensure simpler tax compliance regime in order to further India’s Global ranking in ease of doing business,” it added.