2017-02-03 00:00:00 General English In this blog, explore demonization, incentivised digital payments, and other budget related changes brought about by the digital economy in... https://d3hrajprm8dqcv.cloudfront.net/wp-content/uploads/2017/05/08194702/shutterstock_533794951.jpg Budget 2017 and the Growth of the Digital Economy

Budget 2017 and the Growth of the Digital Economy

3 min read

Digital India is the buzzword driving the country’s digital economy. The digital sector experienced a booming growth over the last couple of years due to:

  • The increase in adoption of smartphones and mobile internet
  • The rise of technology start-ups

Following demonisation last November, a new section of the population has now become open to the idea of digital economy payments. With the advent of GST, the shift to a new digital India has begun.

The telecom industry alone expanded beyond expectations and Peter Chang, Region Head – South Asia & Country Manager for ASUS India, discusses the government’s role in boosting growth in this industry:

“Currently, India has the second largest smartphone and internet user base in the world and the country’s infrastructure will play a pivotal role in propelling this sector forward. To drive adoption of smartphones in Tier II & Tier III markets and give birth to a digitally literate population, the budget should incentivise the telecom industry to facilitate seamless 4G penetration across the country.”

Many expressed their expectations from the Union Budget 2017-18 and look forward to a matured digital economy sector.

Incentivised Digital Payments

The concept of a cashless economy has been a hot topic in the country ever since demonetization in November 2016. With devalued currency notes, India made a push for digital payments. In the budget, the Finance Minister announced cashback for merchants. More emphasis was given on making digital payments through BHIM app. A referral program for the government’s mobile payments application BHIM was also announced.

Easy-digital-payments

Further, the integration of biometric-based Aadhar Pay for increased security on digital payments was also proposed.  Government plans to introduce 20 lakhs Aadhar POS by September 2017.

Reduced Corporate Taxes

The growth of digital economy can be potentially amplified by reducing corporate taxes. Currently, the general corporate tax remains at 30% for domestic companies. The budget announced that for smaller companies, with turnover less than 50 crores, the tax rate would be reduced to 25%.

Reduced-Corporate-Taxes

India Inc. has emphasized the need to reduce corporate taxes and make India’s digital economy sector more globally ambitious. Many have pointed out how a growing corporate sector can numb the sudden effects of demonetization on the citizens and the economy. The GST Bill is a significant addition but its impact on the mobile market is ambiguous. Manish Sharma, President and CEO of Panasonic and Consumer Electronics and Appliances Manufacturers Association (CEAMA), comments on the scenario,

“While the industry anticipates mobile handsets to be placed under 12% GST slab, the industry recommends that the CGST credits shouldn’t be made permissible for imported mobile handsets. For the domestically manufactured mobile handsets a CGST at 0% should be applicable without input tax credits. Meanwhile, consumer durable products should fall under the 18% GST slab as consumer durables no longer are a luxury but a necessity in day-to-day lives.”

Following the release of Budget 2017, NASSCOM released a statement stating:

“The budget evangelises digital payments and infrastructure, along with promoting a transparent business environment. It is also promising that the Government is dedicated to “change the colour of money” on the back of tax reforms, political funding, digital transactions and policies that dis-incentivise the use of cash for high value transactions.”

Impactful Equalisation Levies

The Equalisation Levy also known as Google Tax came into effect on July 1, 2016, with a 6% tax rate and targeted B2B e-commerce payments. It is applicable on a specified amount for digital advertisements and digital Ad space/facilities providers from:

  • A non-resident Indian without a permanent residence in the country
  • A resident Indian – businessman/professional
  • A non-resident Indian with a permanent address in the country

The levy may expand and start including a whole gamut of services like digital payments for applications, software, download, online consumptions and sales.

Google-Tax-for-digital-ads

Additionally, the government has placed a limit of 3 lakhs on cash payments. The government is shooting for a target of over 2,500 crores in digital transactions in the coming year. This would be through UPI, USSD, Aadhaar Pay, IMPS and debit cards.

A number of Industry segments – manufacturing to traders to services segments – come under the umbrella of the digital economy. Small and medium businesses have thrived on this sector and the impact of the Union Budget in the coming year can mark significant transitions in the country’s digital operations.

Related articles: Building a Roadmap to Bridge the Digital Divide for Small Business How Technology Can Keep Your Business Competitive Is Your Current Technology Working for You? Evaluating a Company’s Existing Technology

Information may be abridged and therefore incomplete. This document/information does not constitute, and should not be considered a substitute for, legal or financial advice. Each financial situation is different, the advice provided is intended to be general. Please contact your financial or legal advisors for information specific to your situation.

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