IT DEPARTMENT SENDS FRIENDLY HEADS UPS
IT DEPARTMENT SENDS FRIENDLY HEADS UPS The Income tax department, quite naturally, has always had issues with the tax non-compliance or tax evasion by corporate entities. In recent times, the revenue department has been facing a deficit in its expected level of growth in the collection of service tax.
It has recently come up in the media that as part of the central government’s desire to have a non-adversarial tax regime, which would be more pro-investor, the IT department has adopted a ‘friendlier’ approach to alert the aggregators of their liability. The department had identified the aggregators like Food Panda, Oyo Rooms and Airbnb to ascertain if these entities were registered with the department and were paying the taxes as required.
The requirement arose because most entities had registered themselves with the IT department, but had sought further clarifications on the procedures and provisions dealing with this particular new area of tax incidence. It was further clarified by a department official that the profiling is being done with the aim to help service tax audit and scrutiny of returns.
The finance ministry has in its budget for 2015-16 made a change in the service tax provisions to cover ‘aggregator’ under the service tax net. The service tax rules, 1994, had defined the term ‘aggregator’ as a person, who owns and manages a web-based software application and a communication device, enabling a potential customer to connect with persons providing service of a particular kind under the brand name or trade name of the aggregator. In addition, a corresponding change was made in the meaning of the term ‘person liable to pay service tax’ in the service tax rules, 1994 to include the term ‘aggregator’. According to Service Tax (Amendment) Rules, 2015 vide Notification No. 5/2015-ST dated 01/03/2015, under rule 2(1) (d) (i) (AAA), aggregator shall be the person liable to pay Service Tax in relation to services involving an aggregator. LIABILITIES OF COMPANY DIRECTORS
The rule 2(1) (d) (i) (AAA) of the Service Tax (Amendment) Rules, 2015 reads as under –
“(AAA)- in relation to service provided or agreed to be provided by a person involving an aggregator in any manner, the aggregator of the service:
• Provided that if the aggregator does not have a physical presence in the taxable territory, any person representing the aggregator for any purpose in the taxable territory shall be liable for paying service tax;
• Provided further that if the aggregator does not have a physical presence or does not have a representative for any purpose in the taxable territory, the aggregator shall appoint a person in the taxable territory for the purpose of paying service tax and such person shall be liable for paying service tax.”
Perhaps, the reason behind the inclusion of ‘aggregators’ within the ambit of the tax regime is that these are web-based service providers who provide services without actually being present and functioning through a representative. Either these web-based service providers did not pay service tax on any activity undertaken by them in India because the service provider who actually provides the service to the customer is liable or the service itself is exempt.
The task can be challenging in the times when the economy is rapidly expanding offering vast potential for tax revenue mainly because in some cases there is no brick and mortar presence of these firms.
The taxation of technology-based businesses has emerged as a significant challenge for policymakers worldwide. The organization for economic co-operation and development (OECD) has been actively deliberating the issue in the recent times to work out a plan to tackle taxation in the e-commerce space that will go a long way in helping countries in its proper implementation.