By Peeyush Vaish, Partner and TMT Industry Leader, Deloitte
Direct Tax
Expectation #1: Provide clarity on the meaning of the term “Online Game”
In a digital era, it is common to see online platforms luring customers by offering promotional schemes, such as spin the wheel or scratch card, on completing a prescribed number of transactions. The intention is to market a product/service offering and not participate in a typical game with the intention to win.
Clarity should be provided by way of a circular capturing activities referred as “online game.” Else, all sectors offering and running marketing and promotional schemes/contests online, might get severely affected with the burden of discharging withholding tax obligation under Section 194BA.
Expectation #2: Provide clarity on taxation of telecom services in the hands of non-resident telecom operators
Indian telecom operators make payment to foreign telecom operators for various telecom services. These payments were alleged by the Indian Revenue Authorities, as payments for using equipment/process and therefore, held as taxable, being in the nature of royalty.
In a recent ruling of Vodafone Idea Ltd., Karnataka High Court held that payments made to foreign telecom operators for inter-connectivity use and bandwidth charges are not in the nature of royalty, as no right-to-use equipment is being provided by foreign telecom operators. A similar view has been pronounced in a plethora of rulings.
Clarity is brought out in Income-tax Act, 1961 that payment for telecom services is not chargeable to income tax as they do not entail payment for using equipment/process.
Expectation #3: Increase in scope of provisions dealing with carry forward of losses and unabsorbed depreciation
Benefit of carry forward of losses and unabsorbed depreciation is not available in case of amalgamation of companies not owning an “industrial undertaking”. The term “industrial undertaking” is defined to mean any undertaking engaged in the manufacturing or processing of goods, manufacturing of computer software, the business of generation or distribution of electricity or any other form of energy, the business of providing telecommunication services, whether basic or cellular, including radio paging, domestic satellite service, network of trunking, broadband network and internet services, mining or the construction of ships, aircraft, and railway systems.
Consolidating entities within an industry helps in rapid growth and generation of substantial employment opportunities. This will in turn help make India a competitive country for foreign investment. To promote such consolidation, the benefit under Section 72A to carry forward loss and depreciation on amalgamation, should be extended to include other capital intensive sectors. These sectors include media/broadcasting and entertainment, and infrastructure/capital-intensive service sectors, such as telecom infrastructure service provider and direct-to-home operators.
Indirect Tax
Expectation #1: Exemption on GST TCS obligations on e-commerce operators on facilitation of zero-rated supplies (exports)
E-commerce has transformed the way business is done in India. The e-commerce industry has been directly affecting MSMEs in India. It has generated a favourable cascading effect on other industries.
At present, per section 52 of the CGST Act, an e-commerce operator is required to collect GST TCS @ 1 percent of the net value of taxable supplies made through it by other suppliers where the consideration with respect to such supplies is to be collected by the operator. Taxable supplies do not include exempt of NIL-rated supplies but includes zero-rated supplies. Given this, essentially, even when there is no GST liability payable on zero-rated supplies under an LUT, e-commerce operators are required to collect GST TCS in the absence of any separate GST collection by suppliers. The supplier is required to subsequently claim a cash refund of such GST TCS collected by the e-commerce operator. This results in cash flow issue for exporters and an increase in compliances for e-commerce operators and suppliers engaged in exports.
The government should come forward with suitable amendments to exempt GST TCS obligations on e-commerce operators on facilitation of zero-rated supplies, to help with the cash flow issue for exporters and facilitate the ease of compliances.
Expectation #2: Investment-driven growth in the emerging space sector to support “Make in India”
Production Linked Incentive (PLI) schemes are designed to incentivise domestic production and attract investment by providing financial incentives to manufacturers based on their output.
The Indian private space sector, which is in a nascent stage, requires tax and policy support to boost manufacturing and spur research and development.
PLI schemes for space tech start-ups are needed to help boost local manufacturing and encourage capability building within the country.