With an estimated 2019-20 GDP growth of 5%, at an 11-year low, India’s budget for 2020 featured modest initiatives to aid digital connectivity and capture new tax revenues from e-commerce platforms.

A host of initiatives under ‘New Economy’ have been announced by finance minister Nirmala Sitharaman, in a bid to boost the country’s burgeoning digital economy.

Rs 6,000 crore (US$ 43.8 million) has been allocated to Bharat Broadband Network Limited, a telecom infrastructure provider. India believes this will enable the private sector to build data centre parks throughout the country.

“Our vision is that public institutions at the gram panchayat (village council) level, such as anganwadis (child care centre), health and wellness centres, government schools, PDS outlets, post offices and police stations,  will all be provided digital connectivity. The fibre to the home (FTTH) connection through BharatNet will link 100,000 gram panchayats,” said Sitharaman.

The digital advertising industry which was valued at US$1.93 billion in 2019 is estimated to grow at a CAGR of 27.42% to reach US$8.25 billion by 2025, as per the recently released DAN e4m report. Much of the growth is driven by the penetration of smartphones which are largely sold online.

Speaking to Financial Express, Apaksh Gupta, CEO, One Impression – an influencer marketing platform, called the move “a good one”.

“However, the challenge will reside at an implementation level — for example acquisition of land and selecting the right city, among others,” he added.

There is also Rs 8,000 crore (US$58.5 million) dedicated to the national mission on quantum technologies, to ensure the country fully leverages artificial intelligence and data.

E-commerce tax raises concerns

To tackle the leakage of tax due to e-commerce transactions, the Budget proposes a new levy of 1% TDS (tax deducted at source) on e-commerce transactions, to take effect from April 1, 2020.

"In order to widen and deepen the tax net by bringing participants of e-commerce (sellers) within tax net, it is proposed to insert a new section 194-O in the Act so as to provide for a new levy of TDS at the rate of one per cent," according to Budget 2020-21 documents.

This amendment is likely to significantly impact the compliance burden of companies like Amazon, Flipkart, Uber, Ola and Zomato, who provide platforms to large number of small vendors to sell goods/service via their platform.

In an Economic Times report, Amazon India and Flipkart are studying the Budget proposal on levy of 1% TDS and will reach out to the government for clarifications.

"We are studying the details, particularly how it impacts the MSMEs and Sellers on our marketplace platform. We will discuss further with our seller partners and engage with government and other stakeholders in due course," Flipkart said in its response.

Speaking to The Drum, Ashish Bhasin, the chief executive for APAC and chairman for India at Dentsu Aegis Network felt that more could have been done in the budget.

“This will prepare India for the economy of tomorrow. It is also good to see attempts at simplification of taxation through digitisation but the proof of the pudding will lie in seeing its implementation on the ground,” he said. “It would be fair to say that at best it is a mixed budget and while there are some encouraging decisions, enough does not seem to have been done for the situation the economy is in.”

Sourced from Economic Times, News 18, The Drum Asia, Financial Express