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Hard times ahead for tax collectors in e-commerce age, reckon experts

The laws governing direct taxes today would become obsolete within two to three years as electronic commerce is becoming increasingly popular, experts said in New Delhi.

With business transaction volumes conducted over telephone or Internet growing, tax collection would become difficult under the present laws, experts at a seminar on Electronic Commerce and International Taxation said.

For levying tax on commerce conducted over the Internet, a major problem for tax collectors would be to determine the 'permanent establishment' of the sellers and buyers. Tax can be levied only when the 'permanent establishment' of the dealers can be identified, a very difficult task under the present tax laws, said O P Vaish, advocate and tax expert.

Delivering the keynote address at the seminar, organised by International Fiscal Association-India chapter at the PHD Chamber of Commerce and Industry, Vaish said the government should urgently devise new ways of levying and collecting taxes on businesses conducted electronically.

Acknowledging that electronic commerce in India is still nascent, Vaish said, ''It is absolutely necessary for the government to be alive to this new concept. Otherwise the tax collectors would be at best backward.''

Tax experts and consultants at the seminar urged the government to wholeheartedly participate in international treaties on taxation. It should ensure its ''fair and reasonable'' share of international taxation levied on electronic commerce.

As the new ways of conducting commerce become the norm, the experts said the government should grapple with issues like the source of income, customs and excise, and tax sharing.

The other problems in the taxation of electronic commerce will be related to transfer pricing and tax-havens. ''E-commerce will make it easier to provide services from multiple jurisdictions and will increase the difficulty of determining the source of service,'' said A N Prasad, joint secretary for tax planning and legislation in the finance ministry.

As electronic commerce will enhance the opportunity to shift revenues and expenses among different jurisdictions, it would be more difficult to value goods and services transferred between many jurisdictions than between just two, he added.

Experts mulled over ways of taxing electronic commerce. One of the many suggestions was bit tax, a form of consumption tax levied on transmission of digital information. However, it was pointed out that bit tax would not take into consideration the value of the information or service but only looks into the volume of flow of electronic information.

The seminar emerged with the consenus that whatever be the means of international taxation on electronic commerce, business over telephones and computers and other such devices should, in no way, be hindered in its growth.

UNI