Every year, the IAMAI, the body representing mostly large Internet and Mobile VAS companies in India, submits a document to the Finance Ministry, requesting certain sops. Every industry body does it, but it’s rare that a request from the Internet and Mobile VAS businesses are entertained. At the end of the budget announcement today, we’ll check if the government has taken into account the following demands. In any case, it is indicative of what the industry wants:

What The Internet & Mobile VAS Industry Want

(Note: We’ll be reporting the telecom and digital media components of India’s 2010-2011 Budget announcement live.)

— 100% Depreciation For Broadband Equipment (PCs, modems, routers) in the first year.

Profits that accrue to web hosting enterprises based in India should be partially exempt from the income tax by at least 50% for the next 5 years.

— E-Commerce Sales Tax Waiver For 5 Years: but within limits to be prescribed by the Government. We think it’s unlikely that this will happen; why would the government want to create a different tax structure for offline retail versus online, and hurt India’s massive offline retail market which is probably the second largest employer in the country? However, if an implementation of GST is announced, this might help bring some sense of sanity to the situation of different taxes in different states.

— Broadband Allowance: All corporations, whether public or private, should be allowed to give a Rs. 6,000 per annum allowance to employees for broadband services access at home, which is removed from taxable income for the corporation. The same facility should be extended to self-employed professionals so that they may also reap the benefits of broadband services.

— Venture Capital Taxation: The IAMAI wants preferential tax treatment for long-term capital gains for Venture Capital Funds to be maintain. There’s some talk of long-term capital gains tax to be abolished. Question is: what is “long term” for VCs in India?


— Cybercafes exempted from Service Tax for at least 5 years, though the cyber café itself would continue to pay service tax payable to the respective Internet Service Provider for the Internet Connectivity.

— R&D Tax Exemptions: in 2007, the government had removed the tax shelter for companies investing in long term scientific R&D. The IAMAI has asked for 100% deduction under section 80(1)B (8A) should be extended up to 31 March 2012.

— Income Tax Exemption: Preferential corporate tax treatment for the high technology internet and mobile VAS sectors: The IAMAI has recommended that just in order to support the Internet and mobile content and services providers, access and transaction service providers should be exempt from Income Tax for 10 years under section 35 (A) of Income Tax Act with a very strict sunset clause.

— Waiver of Entertainment Tax: currently approximately 30% in certain states, levied on broadband subscriptions and entertainment services, if they are provided through a broadband or internet platform. The central government will have ask the state governments to implement this.

— Product Development, Bandwidth Charges and Software License Expenses to be treated as Revenue Expenditure: The IAMAI has request a separate guideline for 100% deduction on expenses related to product development, bandwidth and software licenses.

— Abolish MAT: While the CII has been more guarded with its request – asking the government to rationalize Minimum Alternate Tax (MAT)- the IAMAI has asked for MAT to be abolished for Internet and Mobile VAS sectors . Unlikely that this will happen, since the government is facing a huge fiscal deficit. The IAMAI’s rationale is as follows: technical expenditure are treated as capital expenditure, and hence a MAT is applicable at 15% of book profit.

Service Tax: The IAMAI wants a 5 year moratorium on Service Tax for Online advertising, which only accounts for Rs. 400 odd crores annually, saying that service tax will hamper its growth. They also want a 5 year moratorium on online services like classifieds, drivers of Internet penetration under section 65 (72) [zh].