The Internet and Mobile Association of India (IAMAI), which represents some Internet and Mobile companies operating India has called for the Indian government to do two things to foster the growth of digital entrepreneurship in India:

1. Income Tax holiday for Indian digital companies: The IAMAI points out that the Telecom sector was given a tax holiday for 10 years in a block of 15 years, and that the software and ITeS industry received an income-tax holiday under section 10A/ 10B/ 10AA of the Income-tax Act, 1961 (‘IT Act’). The IAMAI wants this to be extended to digital companies.

2. Deduction equal to 150% of salary to new employees for the digital industry: “Section 80JJAA of the IT Act, inter alia, provides that an Indian company operating an industrial undertaking shall be allowed a deduction of an amount equal to 30% of additional wages paid to the new regular workmen employed by the taxpayer during a year for three years, including the year in which such employment is provided. It is recommended that a deduction of an amount equal to 150% of salary paid to new employees be allowed to companies operating in the digital industry. Further, there should be no minimum employment threshold limits that should be set as a pre-condition for claiming the said incentive. The above incentive would go a long way in employment generation and fostering entrepreneurship in digital business.”

3. Preferential tax treatment for investors in the digital sector: “”There are limited alternative sources of finance available to small and new entrepreneurs operating in the digital industry. Initial/angel investors are one of the sources for raising funds for entrepreneurs. The sector would benefit if preferential tax treatment is given to investors.”

4. Weighted deduction of 200% on R&D  of Indic language technology, apps and content: “the internet and mobile companies engaged in the business of development of new technology/software/ application, specifically in the field of local language internet and creation of content, be provided with an incentive of a weighted deduction of 200 percent of amount spent on research and development of application/ content.” More on the state of Indic languages in our #NAMAindic coverage

5. Address the Indirect tax issue for e-commerce: “E-Commerce firms today are at a cross-road due to indirect tax issues, particularly from the State Governments. IAMAI in its submission has requested the Finance Minister to address the anomaly and ensure for the smooth operation of market places. The association has suggested: To promote enabling tax environment for smooth operation of market places: Issues related to VAT are simplified and the practical difficulties of the e-Commerce firms are duly consulted and considered. The current arbitrary demands on VAT and other local taxes by many States are acting as a deterrent to e-commerce.” Read: Kerala govt slaps Rs 54 crore fine on Flipkart, Jabong, Zovi and Myntra

What’s missing: The removal of service tax for online advertising, which was revoked by the last government, and impacts digital advertising significantly – both publishers and agencies. The long advertising payment cycles in India mean that publishers and agencies have higher working capital requirements.

Note: the service tax issue, and some of the issues mentioned above impact MediaNama as well, hence this disclosure.