The revenue department will put in place norms for checking evasion of incomes arising out of e-commerce transactions close on the heels of the government clearing the Information Technology bill. E-commerce transactions are currently negligent, but once the IT bill is cleared, the volumes are expected to quadruple. This would make it essential for the revenue department to be on its toes. The bill is likely to come up before the Cabinet for consideration on Friday, following which it would be introduced in Parliament. Technically, all incomes are taxable but because of the nature of transborder transactions, which are seamless, it is difficult to establish the incidence of tax. As a result, the scope for tax evasion is immense.
Revenue department officials say that it would be difficult proposition to check evasions, considering that e-commerce is a new field and even in the US, regulators are still trying to understand how to regulate the area. Yet once the business booms, the government would like to ensure that there are no revenue leakages.
The problem with electronic transactions is that it is very difficult to prove a transaction has taken place, since flow of information is electronic.
It becomes even more complicated when the flow of information is across borders. Regulators expect much of the e-commerce transactions to be cross-border, with job orders being placed through the net from the US and the job done at the Indian end. The major reason for this is the availability of cheap skilled labour domestically and the time difference between India and US. The time difference makes it possible for clients in the US to commission a job in the evening, which would be delivered on their table the following morning, all done electronically without either of the parties meeting or the goods and payments being physically exchanged.
Officials point out that the whole thing could become even more complicated, if the transaction is routed through three countries or more. In that case, establishing the incidence of tax in each country becomes even more complicated.
The revenue department plans to take these issues into account, as best as possible given the current level of knowledge on the functioning of the Internet, while finalising its norms. Growth of e-commerce in India has been comparatively stunted on account of the fact that currently, electronic signatures are not recognised. This means that credit card payments are not easily possible.
Some companies like Rediffusion have worked out a third party payment arrangement, whereby it is possible to work around this blip. The clearance of the IT bill would resolve the problem. The proposed IT bill provides for setting up an authority to regulate Internet related activities, including electronic communications, e-commerce and information highways based commercial transactions.
It provides for penalties for violations and an appellate to resolve disputes arising out of transborder transaction. The regulatory authority would monitor and oversee issues like jurisdiction, origin, authentication, privacy protection, intellectual property, computer crimes committed via the information highway on the web.
The IT bill also seeks to monitor and regulate activities like
creating web pages, advertising, bulletin boards, and
e-commerce originating from India.
Source : The Economic TimesOctober 28, 1999