Address Concerns of E-Commerce, Digital Industry

Indian economy is in its silver jubilee year of economic reforms. It has come a long way since India unlocked its value to the world in 1991. Today, the Indian economy is positioned to be one of the leading economies in the world with a high growth trajectory. While much has been done in the last 25 years to guide the progress of the economy, a lot needs to be done and achieved to sustain the momentum of growth.

On matters of taxation, successive governments have made conscious efforts to render it more business-friendly and engage it as a tool and stimulus for economic growth. The indirect tax arena has seen progressive and incremental reforms but awaits productive and large scale transformation in the form of Goods and Services Tax (GST) that could support growth needs of the economy. Implementation of GST remains the single biggest unfulfilled ask of the industry and while the industry is expecting the government to announce a concrete action plan around the introduction of GST in the coming year, budget 2016 could be efficiently harnessed by the central government to deliver on the more immediate expectations of the industry in the interim.

Budget 2016 may focus on simplifying the setup and compliance requirements for new businesses to support projects under the government's 'Make in India' and 'Start-up India' campaigns. A system of single window clearances for registrations of new start-ups, simplified compliances and exception-based audit/investigation processes could create a growth-oriented ecosystem for new businesses.

The Make in India campaign also needs to be reviewed from a sector viability perspective with technology intensive manufacturing industries that require import of technology, capital goods or key components. The government could consider bringing in a sector-specific indirect tax structure to promote and enhance viability of Make in India.

The e-commerce sector and the digital technology space have seen extraordinary growth in India in the last few years. E-commerce has gradually touched all aspects of life and is tipped to be the business model of the future. E-commerce and digital space are also disposed towards innovation and keep churning out new ways and means of doing business transactions. The existing indirect tax legislations have not kept pace with advancement in e-commerce and digital technology, and the industry is facing various operational and business challenges due to issues of taxability and regulatory compliances. The industry has also actively expressed its issues and concerns at various forums. Budget 2016 could address some aspects of the concerns of the e-commerce and digital industry which is under the domain of the central government.

Service exporters in India are observing the tenth anniversary of introduction of the input service tax refund scheme in 2006, but achievements of the scheme have been agonisingly disappointing. Complex procedures, unreasonable documentation requirements and added apathy of the department have denied service exporters their rightful due of refund claims. With the eyes of the business world on India, the industry expects the government to take some bold measures in this budget to simplify the existing refund scheme or introduce an alternate refund scheme in the lines of duty drawback, to ensure a seamless flow of refunds to service exporters.

The GST rates are still under debate and the committee headed by the Chief Economic Advisor has recently suggested the possible band of revenue neutral GST rates. The budget could be used as a platform by the central government to align the indirect tax rate structure across central indirect tax legislations and the industry, and the consumer can expect an upward trend on indirect tax rates in this budget.

Indirect taxation in India is going through turbulence and the economy is expecting disruptive changes through GST and other measures. The central government may or may not be able to bring in big bang indirect tax reforms given the existing political landscape. However, a step-by-step, positive and measureable reform process on indirect taxation can improve confidence of the business community/investors and keep the India story alive.

(Vivek Pachisia is Tax Partner at EY India)

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