A report prepared by IAMAI and Nishith Desai associates titled 'Taxation of the Digital Economy: Impact analysis for India,' which was released by Mr Subhash Chandra Garg, Secretary (Department of Economic Affairs), Union Ministry of Finance, maps the various tax issues and challenges currently affecting the digital businesses at early stage, over the operating life and exit stages.
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 takes the form of IP transfer/sharing. Both these factors have historically been extremely sensitive to the taxation regime of the host countries as reaffirmed by the ‘Doing Business Report’ released by the World Bank.
It said that the digital industry recognises the importance of tax collections and the responsibility on all citizens and businesses to pay the imposts. However, it is important to ensure that 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.
The report also suggests that rationalising tax provisions will encourage growth of the sector, which in turn will help raise its total tax revenues.