Startup lobby of Ola, MakeMyTrip, others asks for this major tax rule change for foreign firms in India

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Updated: June 18, 2019 9:24:10 PM

IndiaTech -- formed by founders of Ola, MakeMyTrip, Steadview Capital and Hike in meeting with Commerce Minister Piyush Goyal on Monday suggested having a concept of 'Permanent Establishment' for foreign firms in India.

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The lobby group for Indian internet ventures and technology investors — IndiaTech formed by founders of Ola, MakeMyTrip, Steadview Capital and Hike in meeting with Commerce Minister Piyush Goyal on Monday suggested having a concept of ‘Permanent Establishment’ for foreign firms, which are doing business in India, by setting up an Indian entity by its own or its affiliates to avoid domestic laws and compliance while generating revenues, IndiaTech CEO Rameesh Kailasam told Financial Express Online.

IndiaTech’s members including Ola and MakeMyTrip were part of the industry consultation held with the ministry that also included DPIIT Secretary Ramesh Abhishek, Ministry of Electronics and Information Technology Secretary Ajay Prakash Sawhney, RBI’s Deputy Governor BP Kanungo etc., apart from Indian and foreign e-commerce and technology companies.

Given that the digital economy is characterized by an unparalleled reliance on intangibles, the extreme use of data and the difficulty of determining the jurisdiction in which value creation is occurring, it is pertinent to amend certain prevalent laws in India to ensure that such companies generating revenue in India are subject to the applicable regulatory framework in India such as inter alia payment of taxes, liability with respect to failure to maintain confidentiality of personal data, foreign exchange laws, etc.,” Kailasam said in a written response.

IndiaTech also suggested the effective adoption of the Central KYC Records Registry (CKYCR) across all regulators “to promote inter-usability of KYC records across financial sectors and this will prove to be beneficial for regulators given that KYC data across all regulators such as the RBI, SEBI, IRDA, PFRDA, etc. will be unified,” said Kailasam.

CKYCR can also be used by such regulators to maintain a central record of high, medium and low-risk customers and regulators can choose to provide financial products to the potential customers based on this data. Such profiling will also help reduce the risk of default, fraud, etc. CKYC allows investors to perform their KYC only once before “interacting with various entities in the financial services sector,” according to PwC India.

The lobby group’s members also suggested easing of IPO norms for high growth internet-based technology companies (HGIC) which have scaled up and achieved revenues and valuation that is comparable to that of companies listed on the main board of the stock exchanges in India should be allowed listing without mandatory requirements around minimum promoter shareholding, net assets or profitability requirement.

“There can be other checks and balance imposed on the basis of turnover, years in existence etc. It is advisable to create an enabling regulatory regime for HGICs to list on the Main Board with a dual-class equity shares (DCES) structure where founders like their counterparts in US, Singapore, Hong Kong etc., can benefit from higher voting powers,” said Kailasam.

Further, instead of taxing employees of startups when they exercise their options and convert ESOPs to shares to when the actual sale happens and greater participation of internet startups to list on GeM portal for increased efficiency in government’s procurement of services was suggested by IndiaTech during the meeting.

Piyush Goyal has sought concerns of online retail ventures with respect to draft e-commerce policy within 10 days. The concerns were also raised by companies around RBI data storage requirements and processing related guidelines issued by the RBI, the ministry said in a statement.

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