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FICCI moots five-year tax holiday to promote e-commerce

Our Bureau

NEW DELHI, Dec. 24

THE Federation of Indian Chambers of Commerce and Industry (FICCI) has suggested a five-year tax holiday to enable the software industry to plough back its resources for further development in the area of e-commerce.

The chamber said the gradual phasing out of Section 80 HHE of the Income-Tax Act must be deferred to continue to promote export of computer software and related services. The benefits given for computer software development should not be phased out for a t least two years. If need be, they should be phased out only after 2003, under Section 80HHE.

In a memorandum to the Government, FICCI said the corporate tax rate should also be lowered. It felt that countries with a higher taxation rate and complex rules and regulations would face problems because operators could transfer activities to a country with a lower taxation rate or one which has simple taxation rules.

FICCI has suggested that there should be rules to monitor e-commerce. Unless this is done taxation would be difficult.

A uniform commercial code is important as the emergence of an electronic market place will make it difficult for individuals to search and access the legal and financial well-being of potential trading partners.

Further, there should be international co-operation, particularly in treaty negotiations in the field of source, residency, permanent establishment and allocative rules to provide more opportunities to Indian businesses particularly small ones to conduct e-commerce.

The definition and scope of Section 9(1)(i) of the Income-Tax Act in relation to ``business connection'' should be brought in line with the definition and scope of the term permanent establishment under tax treaties and specifically provide for instances and situations which determine taxability of a non-resident in India.

Also, the term ``royalty'' should clearly identify e-commerce related payments which are intended to be within its scope, FICCI said, adding that registration of Web sites is important.

The provisions of capital gains tax should be done away with especially on items such as transfer of domain and transfer of other e-commerce applications, the chamber said.

Double taxation avoidance agreements would need to be reviewed and modified to specifically mention the methodology to be adopted for taxing the income arising from e-commerce business, the chamber said.

A special court should be set up for speedy disposal of cases related to e-commerce business, it said. Considering the complexities involved in the issue of e-commerce taxation, the National Academy of Direct Taxes should prepare a manual for tax authori ties to provide technical and investigation inputs pertaining to e-commerce transactions, it said.