Digital transactions such as emails, blogs and downloads may soon be taxed if the recommendation of a committee on e-commerce levy are accepted.
The committee was set up by the Central Board of Direct Taxes. It has recommended a tax of six to eight per cent on 13 services, in a bid to prevent tax avoidance by multinationals.
This is beyond the Budget proposal to impose an equalisation levy of six per cent on online advertisement, provision for digital advertising space or any other facility or service for online advertisements.
It is based on Base Erosion and Profit Shifting guidelines of The Organisation for Economic Co-operation and Development (OECD) - which provides economic solutions to member nations.
The committee submitted its report on February, but it was made public on Monday.
Finance Minister Arun Jaitley in the Budget proposed an entity making payment to a non-resident entity exceeding Rs 1 lakh a year for online advertisement would withhold tax at six per cent of the gross amount paid as equalisation levy.
The proposal is expected to not only affect Google and Facebook but many start-ups that rely heavily on digital advertising.
However, the committee's recommendations include advertising on radio and television, designing, hosting of websites, email, blogs, and facilities for collecting online payments.
Besides, it has recommended the levy for downloading music, movies, games and software through the Internet. However, all those services have to be B2B in order to attract this levy and not business-to-consumer.
"The limit of Rs 1 lakh is low and it should be increased. Further, if the service is related to doing business outside India, whether an equalisation levy is applicable is a matter of debate," said K R Sekar, partner, Deloitte Haskins & Sells LLP.