Tax in a Digital Economy

Times of India reports that Akhilesh Ranjan, joint secretary (foreign tax), who led India's initiative in the BEPS project, candidly shared his views on India's plans for its implementation and what lies in the future. The fundamental principle of the BEPS project, is that income of MNCs should be taxed in that country where economic activities are performed and where value is created. India, as a major outsourcing hub, may stand to garner higher share of taxes, as countries transition towards a BEPS-compliant regime. Looking ahead, taxation in a digital economy has its challenges, but India with a large consumer base (e.g.: 108 million Facebook users, second only to US) needs to find fair tax solutions.

"There is a concern that business operations, in a digital economy, can be run in another country without a physical business presence. The value of digital companies is skyrocketing, often with no rational basis. Such value is created largely by the market. We believe that value is created not merely by the production of goods and services, but also by the purchasing power of the market where the goods and services are consumed. "Even as no consensus emerged on this issue among countries, BEPS Action Plan-1 Report provides for options to deal with the broader tax challenges in the digital economy. India takes credit for incorporating into the action plan various tax options - this was a huge effort. (The options recognize the concept of a significant digital presence for corporate tax purpose, other tax options include withholding tax and an equalization levy in the nature of an excise tax). We even had to take cudgels against countries like the US.

Also, India's rapidly expanding ecommerce companies are lobbying the government to keep aggregators that run marketplaces out of the proposed goods and services tax (GST) net. As the administration tries to persuade the Opposition to reach a consensus over the proposed levy, online retailers are pressing the point that companies running platforms that allow vendors and customers to transact shouldn't be subject to GST. By the same logic, they also want these companies — such as Flipkart, Amazon India and Snapdeal — to be viewed as "service providers" to the vendors, liable to pay GST only on service income. 

SJP @DigitalAsian


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