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India rules out tax on e-commerce transactions

The Indian government will not tax e-commerce transactions for a year to encourage paperless trading, Finance Minister Yashwant Sinha said in an interview published on Thursday.

"We have to proceed very cautiously in taxing e-commerce. Even in Europe and the United States, the authorities are groping as they find it difficult to tax e-commerce transactions," he said.

"During this fiscal (to March 2001), we will not subject e-commerce to taxation. Any wrong step in taxing e-commerce will do more harm than benefit the economy," he said.

"Moreover, not taxing these transactions will encourage the use of the Net for e-commerce."

India's cabinet on Monday raised the limit on foreign direct investment in e-commerce firms to 100 percent from 49 per cent, but said a foreign company would have to offload a 26 per cent stake within five years.

It also said the raised foreign investment limit would only apply to e-commerce firms engaged in business-to-business transactions.

Sinha said the government had yet to decide on whether it would allow 100 per cent foreign investment in content-based portals not involved in e-commerce.

"Content-based portals, where transactions do not take place, will be considered by the group of ministers on information technology convergence as it includes intellectual property related issues as well," he said.