How long will e-shopping stay out of the tax net?

So what if Web retail sales were dismal last year, e-shoppers have little to fear from taxmen

by Madhumita Chakraborty

THAT the future of money is virtual, is now a stale contention. No one is really arguing against it, not even after retail sales over the Internet failed to live up to the expectations of number crunchers last year. The National Association of Software and Service Companies (NASSCOM) expect e-commerce to treble this year to Rs 7,500 crore!

The question that haunts governments, the software and service industry and Net buyers and sellers is how long shopping at the click of a mouse will remain beyond the tax net. The street signs say, for a quite a while now. At home, the Union government has re-introduced the five-year tax holiday on e-commerce transactions, along with Internet service providers and services. Even beyond the seas and around the world, the disgruntled mutterings about revenue losses are being drowned by louder voices calling for a moratorium on taxing Internet transactions. In the United States, where the worldwide Web has been a shopping mall for quite a while, the term e-commerce often extends to all transactions using the same telecommunications infrastructure as the Internet, such as catalogue orders placed by telephone or facsimile.

Tax men have fretted there about losing revenue from inter-state mail-order business. The US Advisory Commission on Inter-governmental Relations estimated that in 1994 states and local governments lost $3.3 billion of revenue from mail-order sales, on which taxes were not, or could not be imposed.

On March 2, 2000 the United States Department of Commerce Census Bureau released its first official estimate of online retail sales, pegging e-transactions at $5.3 billion or 0.64 per cent of total retail sales during the fourth quarter of 1999. (The estimate only referred to sales of tangible goods, like books, computer equipment, furniture and apparel and did not include sales of services.)

In April, the US Advisory Commission on Electronic Commerce submitted its report to the US Congress and pitched strongly in favour of tariff-free e-commerce. The Commission drew its mandate from the US Internet Tax Freedom Act. The Act gave the Commission a statutory mandate to study “federal, state and local and international taxation and tariff treatment of transactions using the Internet and Internet access and other comparable intrastate, or international sales activities.”

It directed the US Senate and the House of Representatives to appoint 19 commissioners, including the Secretary of Commerce, the Secretary of the Treasury and the United States Trade Representative (or their respective delegates.)

The Commission also included eight representatives from state and local governments and eight representatives from the e-commerce industry (including small businesses), telecommunications carriers, local retail business and consumer groups.

If you thought Uncle Sam’s domestic affairs have no bearing on this side of the Pacific, please think again. The Commission did not confine itself to the US online market. It went a step forward to recommend that the US Congress “support the formal, permanent extension of the World Trade Organisation’s current moratorium on tariffs and duties for electronic transmissions.”

The Advisory Commission on Electronic Commerce Report to Congress said the US should “encourage and support (including adequately funding) the US Government’s efforts to further international dialogue concerning the taxation of e-commerce...” With the most powerful nation on earth as a lobbyist, Net buyers and sellers could surely holler out a “hurray!” Most of the commissioners on the panel widely supported a freeze on tariffs at the earliest possible date. They sought an extension of the prevailing moratorium on the “multiple and discriminatory taxation of e-commerce” in the US by five years.

True, online trading at home will not reach levels in the US for a long time now. According to one estimate, e-commerce transactions could grow to $ 2.3 billion annually next year, which is lessthan half of the US online trading in a quarter.

Even so, the virtual shopping mall will soon begin to impact everything soon. A study conducted by Jupiter Media Metrix shows that the worldwide wireless advertising subscription revenue would be $ 7.5 billion by 2003, of which almost $5 billion would come from Asia. North America is expected to account for only $0. 7 billion of the advertising revenue and Europe would do somewhat better with $1.7 billion (roughly two-thirds of the projected revenue.)

In the last four years e-commerce in India has grown by leaps and bounds, if you believe NASSCOM estimates (and who else would track e-business the way they do?) In 1998-1999 the total volume of e-commerce was estimated to be worth Rs 131 crore. The following year, the sum total of business-to-business (B2B) and business-to-commerce (B2C) transactions was Rs 450 crore.

Last year, even though the amount of retail sales did not grow much, the total commercial transactions over the Net grew five-fold to reach Rs 2300 crore. And next year the volume of Net trading should be three times higher still!