IT Sector-Like Tax Holidays to Help Digital Firms Grow: IAMAI

New Delhi: Introduction of tax holidays will help new-age digital companies and entrepreneurs expand their business and provide growth impetus to the fledgling industry, IAMAI said on Sunday.

"The software and ITeS industry, which is among the most visible sectors in India today, had benefitted significantly from the fiscal support provided by the government in the form of income-tax holiday," Internet and Mobile Association of India (IAMAI) president Subho Ray told PTI.

The STPI scheme for IT companies offered 100 per cent tax deduction on profits. The exemption was discontinued after March 2011.

Incentive in the form of tax holiday would help the industry achieve its full potential by facilitating expansion, employment generation and entrepreneurship, he added.

Currently, there is no income-tax holiday available under the I-T Act for digital companies.

"Also, there is limited alternative sources of finance available to small and new entrepreneurs operating in the digital industry. Initial/angel investors are one of the sources for raising funds for entrepreneurs," Mr Ray said.

The sector would benefit if preferential tax treatment is given to investors, he added.

The body has also suggested that issues related to VAT be simplified to promote enabling tax environment for smooth operation of market places.

"E-Commerce firms today are at a cross-road due to indirect tax issues, particularly from the state governments.

The current arbitrary demands on VAT and other local taxes by many states are acting as a deterrent to e-commerce," Mr Ray said.

Established in 2004, IAMAI counts players like Amazon, eBay, Facebook, Flipkart, Google India, OLX, mydala and Itzcash among its members.

The body has also suggested that local language should be promoted on the web to help improve penetration of Internet and broadband in rural areas.

"Internet and mobile companies engaged in the business of development of new technology/software/ application, specifically in the field of local language internet and creation of content, be provided with an incentive of a weighted deduction of 200 per cent of amount spent on research and development of application/content," Mr Ray said.