DIT wants e-commerce to grow

New Delhi, Jan 26 | Updated: Jan 27 2005, 05:30am hrs
The department of information technology is likely to support the industry on the issue of income-tax exemption on e-commerce, according to a source in the government.

IT secretary Brijesh Kumar refused to make a specific comment on what the department stand would be on e-commerce taxation. Its for the finance ministry to take a call, he said. However, he told FE: We want the industry to grow.

The Federation of Indian Chambers of Commerce and Industry (Ficci), in its pre-budget memorandum, has demanded that at least for sometime such transactions (e-commerce) should not be made subject to tax. According to a Ficci official, at present, theres no taxability on e-commerce business, and we want that status to continue.

A high-powered committee, comprising chartered accountants and taxation lawyers, was set up in 1999 to draft guidelines for taxing e-commerce business. The committee was constituted by the Central Board of Direct Taxes (CBDT). Even six years after the committee was formed and sudsequently submitted its report, the government has not taken a decision on framing the rules on e-commerce taxation.

In the past also, the industry has been demanding long-term tax moratorium for e-commerce. Internet Service Providers Association of India (ISPAI) and National Association of Software & Services Company are among those to have demanded tax exemption for e-commerce.

The Ficci pre-budget memorandum makes a case for the non-taxability status, saying electronic commerce has the potential to make India an economic super power in times to come. It also points out that the finance ministry has not taken any decision on the report submitted by the high-powered committee on e-commerce.

Uncertainty in this regard needs to be removed and a white paper should be published spelling out the governments stand on e-commerce deals, the Ficci pre-budget memorandum argues.

It adds that the concept of permanent establishment plays an important role in determining tax jurisdictions. This has lost much of its significance in the context of e-commerce and the relevance of fixed place of business and the agency rule are crumbling. E-commerce does not recognise either and does not fit within the traditional concept of permanent establishment, according to the memorandum.

But, the business chamber says that taxing incomes having connection in various countries is causing problems.... All such situations would have to be taken care of through legislative or other means.