Going beyond the current debate of continuation and discontinuation of the so called fiscal stimulus, the Digital industry represented primarily by internet and mobile value added services companies have suggested a long-term growth package for the development of digital content and services industry in India in the forthcoming Union Budget. In a pre-budget Memorandum sent to the Finance Ministry and to the Department of Information Technology through their representative body, the Internet and Mobile Association of India [IAMAI], the industry has suggested one or more of the following steps in order to ensure long-term growth of the industry:

Preferential corporate tax treatment for the high technology internet and mobile VAS sectors

Issue:

Today Internet and Mobile Value Added services are what IT and ITeS used to be 10 years back. They are the emerging technologies where India has an opportunity to take the lead; they are in a position to create global companies such as Amazon, Google and eBay; they are operating in India helping Indians with their services and making Indians efficient and productive. They have, however, never so far been either recognised or given any fiscal benefits.  An emerging sector requires fiscal and tax benefits to achieve its full potential and we would recommend the following:

Recommendations:

• It is our recommendation that content and service providers on internet and mobile; transactions on internet and mobile and companies providing internet and broadband connectivity be exempt from Income Tax for 10 years under section 35 (A) of Income Tax Act with a very strict sunset clause.

Fiscal Benefits for E-Commerce:

Issue:

The Telecom Regulatory Authority of India in its recommendations on increasing the         penetration of broadband had strongly recommended some fiscal measures that would help the internet users and by implications encourage the adoption of internet and broadband by more and more people.

The specific fiscal recommendation in Chapter 5 of the TRAI Recommendations for E-commerce inter alia is:

• The Government of India should also recommend to all State Governments to waive sales tax on goods and services that are transacted through electronic mode (e-commerce) for the next 5 years up to limits to be prescribed by the Government. This recommendation should be then followed with legislation to ensure execution by the State Governments.( Source TRAI recommendation: 5.5.7)

Indirect Taxes

Ensuring Growth of Internet Services: 5 year Moratorium on Service Tax

Issue:

Online industry has been covered under the service tax since 16 July 2001 [under section 65(72)[zh] of service tax notification]and subsequently [under section 65(75)[zh] vide Finance Bill 2008 w.e.f 16 May 2008].Online services have, therefore, been one of the earliest industries to be covered by service tax

Recommendation:

• Moratorium for a 5 year period on service tax under section 65 (72) [zh], this will allow this nascent industry to grow in size and stabilize and be in a position to accept additional tax responsibilities.

Highlighting the expectations from the Budget the association, in a press release, drew attention to the fact that three of the sectors which had in recent years driven growth and development in the country: IT&ITes, Telecom and Infrastructure were well supported by the government. An important component of that support being direct or indirect fiscal benefits. If the government seriously wishes to bring the rural areas in the developmental vortex through broadband connectivity, it must be involved in the growth and expansion of the digital industry.

In a prepared statement Dr Subho Ray, president, IAMAI said “everyone recognises that the digital industry is capable of delivering huge positive externalities, especially for rural areas, it is time that the industry was incentivised to do so”

About IAMAI

www.iamai.in

The Internet & Mobile Association of India (IAMAI) is a not-for-profit industry body registered under the Societies Act, 1896. Its mandate is to expand and enhance the online and mobile value added services sectors. It is dedicated to presenting a unified voice of the businesses it represents to the government, investors, consumers and other stakeholders. The association addresses the issues, concerns and challenges of the Internet and Mobile economy and takes a leading role in its development.

For further queries please contact:

Faiz Askari
Media Counsel
IAMAI
Mob: +91-9871762630