"E-business
does not have magical attributes"
On his recent trip to India, Peter Willeme, partner at Arthur Andersen,
who is based in Europe, took time out of his busy schedule to speak in
an exclusive interview to BT's Ashutosh K. Sinha, on e-Commerce taxation.
Q. Where does Europe figure in the Net market?
Where the Net is concerned, US is the undisputed leader, with Europe close
on its heels. Europe has a segregated market. Countries like Sweden and
Finland are ahead of the southern countries. Europe now has the golden
opportunity to forge ahead of the US, as they have the telephone infrastructure
and the mobile digital networks. A lot of money will be raised via the
mobile telephony business. If you look at companies like Motorola, they
are investing a lot to get the most advanced technology for the GSM network.
Although they are based in the US, they are providing the latest technology
in Europe.
Q. What is happening
regarding e-Commerce taxation in Europe? What kind of legal changes are
being considered in light of the spectacular growth of e-business?
The debate is
about whether a certain operation constitutes a particular establishment.
The debate is on at the Organisation of Economic Co-operation and Development
(OECD) level--which defines the model treaties and also explains what
a permanent establishment is. Generally, taxation occurs with a permanent
establishment. The issue at stake is whether a computer is a permanent
establishment or not? Or, is a Website on a computer a permanent establishment?
The other issue is: how does one tax the VAT for services coming out of
a certain area? These are the two issues which legislators are dealing
with. So far, I have not seen any changes in the law.
Q. Though the Net
market has grown at different rates in different European countries, governments
there have to have a consistent stance on e-Commerce taxation.
We have to realise
that e-business does not have magical attributes. It is just another channel
of distribution. It makes a company more efficient. And it must be remembered
that only digital products can be delivered over the Net. All other products
have to be delivered in the traditional mode. So, you don't gain a lot
by having a digital network if you still have to deliver your products
the old way. So, if you think about taxation and (notional) loss of tax
(to governments), then you will find that the loss is primarily in the
area of digital products, not so much in the distribution of physical
products. You can take the example of films, services, music, in fact,
almost anything that can be downloaded.
Q. Just how do
you go about a thing like taxing e-Commerce?
One of the advantages of the Net is that you can sell goods without being
taxed. As of now, an order which is below a certain threshold is non-taxable.
Q. Who pays the
tax?
The server which
hosts the Website is located at one place, while the physical location
of the business is at another place. As long as a transaction takes place
within the borders of one country, it is not a problem. If you were to
import a book from the US and stay in the Euro Zone, you pay the VAT if
your order was above the set levels.
Q. Are you working
with various governments to resolve this problem?
We are working with governments of some countries. We are focusing primarily
on identifying problems, but not closely involved with designing the legislation.
Q. What steps should
the Indian government take to prepare itself for the e-Commerce explosion?
E-business will
become regular within a couple of years. And from a business perspective,
I don't think India will remain an outsider. Your consumer market is not
as wealthy as the consumer market in Europe or the US today. But tomorrow,
with the advent of e-Commerce, there is every likelihood of that changing.
Q. What about
services which are typically confined to the Net?
If a particular service is not taxed at present, the government won't
lose money on it since it wasn't taxed anyway. My advise would be not
to levy any taxes on such services. None of the other countries are doing
it, so there is no reason why it should be done in India.
|
