Arun Jaitley's budget proposal seeks to tax profits made by tech firms, such as Google, Facebook and Netflix, using the concept of significant economic presence
New Delhi: The government has sought to bring the digital economy into the tax net with a proposal to this effect in Thursday’s Union Budget 2018. The proposal seeks to tax profits made by digital firms in India using the concept of significant economic presence.
Analysts point out that this could apply to all online advertisements, online searches, cloud services and other digital products, and ensure that profits of these firms attributable to Indian users is taxed in India. This could bring firms like Google, Facebook and Netflix with huge consumer bases in India into the tax net.
Emails and messages sent out to Facebook, Google and Netflix remained unanswered till press time.
To be sure, firms based in countries having double taxation avoidance agreements with India will be protected. Also, the provision will kick in only at a threshold that will be notified later.
Significant economic presence has been defined in the finance bill as “any transaction in respect of any goods, services or property carried out by a non-resident in India including provision of download of data or software in India" or “systematic and continuous soliciting of its business activities or engaging in interaction with such number of users as may be prescribed in India through digital means".
The concept is part of the base erosion and profit sharing action plan agreed upon by the Organisation for Economic Co-operation and Development (OECD). It will come into force for assessment year 2019-20.
In a previous attempt to tax digital transactions, finance minister Arun Jaitley had introduced the concept of equalization levy in the 2016 budget for online advertisements.
The budget presented on Thursday also has steps to promote digital payment transactions within the country but reiterates the government’s intent to clamp down on cryptocurrencies.
In his budget speech, Jaitley proposed use of blockchain technology to encourage digital payments. He promised easy internet access to villages, tax sops for promoting use of digital transactions and a national programme to encourage artificial intelligence (AI) initiatives.
Jaitley said the move will also give a fillip to digital payments as blockchain technology, which maintains a chain of records of transactions without the need for intermediaries, will ensure greater security. He said the government is opposed to cryptocurrencies given that they can be a channel for money laundering and terrorist financing.
“The government does not consider cryptocurrencies legal tender... and will take all measures to eliminate use of these crypto assets in financing illegitimate activities or as part of the payment system," said Jaitley.
The government has been pushing for a shift to a less-cash economy, especially after the invalidation of old, high-value banknotes on 9 November 2016. Jaitley proposed disallowing payments exceeding Rs10,000 in cash made by trusts and institutions.
The finance minister said completion of Phase 1 of BharatNet, aimed at providing high-speed broadband to all panchayats, is a big step in Digital India’s journey and the government will now scale it up by providing 500,000 Wi-Fi hotspots in rural areas to provide easy internet access to 50 million Indians. The government has allocated Rs10,000 crore for telecom infrastructure including BharatNet. As many as 250,000 villages got optical fibre connectivity under the BharatNet programme, in the first phase of which 100,000 gram panchayats have been connected, said Jaitley.
BharatNet is being implemented by the department of telecommunications to create network infrastructure for providing 100 Mbps broadband connectivity to all gram panchayats (around 250,000) in the country in a phased manner by the end of 2018. Budget 2018 allocated Rs10,000 crore towards BharatNet to expedite the project.
Jaitley also said that NITI Aayog will initiate a national programme to work on AI solutions.
“From a digital economy perspective, allocating funds towards creation of digital infrastructure, promoting cashless payments, and building smart cities is encouraging, said Rishi Gupta, managing director and CEO of Fino Payments Bank.
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