0 comments on “Digital Economy is the Key to Realizing Indonesia into the Big Five of the World Economy”

Digital Economy is the Key to Realizing Indonesia into the Big Five of the World Economy

IndonesiaIn an oration entitled “Leap Frog Indonesia Through Digital Economy”, Rudiantara revealed that the development of a digital economic ecosystem is the key to realizing the nation’s economy towards the ranks of the world’s top five economies.

“The experience of a number of startup companies or startups that have grown up like Gojek, Tokopedia, Bukalapak and Traveloka shows that information and communication technology is the main booster rocket that can make a leap frog from zero, passing many stages at once, “To reach a point farther than what other conventional companies can achieve,” said Rudiantara.

To overcome the widening welfare gap in the world today, Rudiantara also urged the world to carry out a global movement. This has been conveyed by Rudiantara at the International Telecommunication Union (ITU) forum in Korea.

One way is through the adoption of innovative digital economic business models and strategies to enable shared economy, digitalization of labor, and financial inclusion. This proposal departs from the experiences of a number of Indonesian startups which prove that digitalization can be directed towards empowering the workforce through new ways.

Rudiantara also mentioned that the digital economy in Indonesia in 2020 is expected to reach 130 billion US dollars or Rp 1,831 trillion. With these achievements, the next two years the digital economy will contribute around 11% of Indonesia’s gross domestic product.

“But of course it’s not as easy as turning your palm to achieve all of that. There are at least seven main issues in the digital economy that must be a common concern. These seven issues are human capital, startup funding, taxation, cyber security, ICT infrastructure, consumer protection, and logistics, “said Rudiantara.

According to Rudiantara, what the government has to do to meet the big changes in the economy and business is to cut regulations a lot and create an ecosystem that provides broad opportunities for innovation to develop.

Rudiantara added, leadership in the digital era must be pursued with at least three principles, namely less of a regulator, by simplifying regulations, simplifying and eliminating permits; more of a facilitator, by providing affirmative policies in developing infrastructure, encouraging digital entrepreneurship, and growing digital economic talents; and more of an accelerator, by accelerating the growth of new digital startups and other business sectors, especially MSMEs.

“The government and the education world must work hand in hand to grow and assist young people to have a passion for technology and become a workforce that has digital skills that are able to view community problems as a challenge to be solved and monetized,” said Rudiantara.

Some time ago, Gojek Indonesia launched Go-Viet in Hanoi, Vietnam. According to Rudiantara, this showed the ability of the nation’s younger generation to solve the problems of modern humanity.

“In the range of the digital economy that is still very young, our nation’s younger people have been able to carve out legacy that is not only sweet to remember, but also surely will inspire the achievements of other nationals in the digital realm of the world,” said Rudiantara.

According to him, this phenomenon also proved that digital space in Indonesia has the same opportunities as other countries in the world. In an increasingly digital world, the perspective of the market must be broader.

Meanwhile, to help prepare Indonesia’s human resources in supporting digital transformation and improving the digital economy, in the near future the Ministry of Communication and Information will launch “Digital Talent Scholarship”. This program is in the form of intensive training scholarships by holding five universities in Indonesia, including Unpad.

source: www.unpad.ac.id

0 comments on “Overcoming digital divide – analysis (India)”

Overcoming digital divide – analysis (India)

India FlagIndia’s policies towards digital regulation are inadequate. Future policy-making must be based on economic considerations and evidence, not on myopic political considerations

In 2014, the Narendra Modi-led Government came to power with an objective of ‘minimum Government, maximum governance, aimed at showcasing the country as an investment-friendly destination. Thereafter, on various occasions, the Government announced measures to boost private sector investment in the country. To its credit, several high-level policy decisions, like the Goods and Services Tax (GST) and Insolvency and Bankruptcy Code were enacted to improve the business and investment environment. However, the major test for the Modi-led Government is yet to come.

India is on the cusp of laying the foundation stone for the next digital revolution (Industry 4.0). Industry 4.0, synonymous with the digital economy, is expected to contribute one trillion dollar to national output by 2022-23. Given the undeniable potential of the digital economy to contribute outsize growth, it is incumbent on the Government to adopt a delicate, evidence-based approach to put in place an appropriate regulatory architecture that ensures the country reaps full dividends from Industry 4.0.

However, emergent policy recommendations in the past few weeks indicate that the Government is handling the nascent digital economy with a 20th century mindset. These include recommendations of the Committee of Experts, led by Justice (retd) BN Srikrishna, the draft e-commerce ‘policy’ and the draft report of the Working Group on Cloud Computing — the latter two, as reported by the media, amply illustrate the perils of a dated mindset.

For starters, the decision-making process of all the three have remained opaque and had negligible representation from private organisation, let alone investors. Therefore, the final outcome of these groups has been skewed towards one direction, while ignoring the consideration of other stakeholders, in particular investors. For instance, despite highlighting the economic cost and concomitant adverse impact on the start-up ecosystem associated with data localisation in a white paper, the final recommendation of the BN Srikrishna committee endorses the same. Similar provisions for localisation have found their way in Cloud computing recommendations as well as the draft e-commerce policy. It is important to note that storage of data in India would not mean access to that data by local entities. Additionally, such measures can exacerbate cyber-security risks by compelling enterprises to invest in increasing data storage capacity, while apportioning fewer resources to ensure adequate security controls.

Furthermore, voices for protectionism, which are reminiscent of the discourse during the 1991 reforms, are getting louder. Particularly with respect to the draft e-commerce policy, a document, which besides guiding India’s position at the international trade fora, is aimed at promoting the domestic e-commerce ecosystem. This policy will implicate all aspects of the digital economy, and have a key role to play in India’s preparation for the emergent digital revolution.

However, protectionist voices have argued that the Government should formulate different rules for foreign and domestic companies, citing that availability of abundant capital with foreign companies could kill domestic entrepreneurship.

India has come a long way from considering investments as a bail out to solve external payment crises, to recognising that investments bring with them growth and employment, and consequently make a significant contribution to the economy at large. Constant liberalisation of the foreign investment regime in the country is an example of this approach.

Nonetheless, while dealing with digital economy, a constant international best practice which is cited by protectionist voices is that of China. The question to ask is: Can India afford to adopt the Chinese approach? Currently, India’s share in global value chains (GVC) is estimated to be less than two per cent, while China’s share is in double digits. Importantly, China’s peculiar political and economic outlook makes its policies inimitable. For instance, most Chinese players in the digital economy have been supported by state-led investments.

Unlike China, India neither has the economic footprint to deter other countries from taking restrictive reciprocal measures, nor are our entrepreneurs and businesses supported by public sector finance. On the contrary, foreign capital has played a vital role in providing India’s home-grown digital companies like, Ola and Paytm, a global stage. Introducing onerous regulatory conditions and uncertainty could impact the trust of the investors in India as a promising and stable digital market, consequently damaging the image of the country as an investment-friendly destination.

Therefore, it is important that future policy-making is based on economic considerations and on evidence rather than myopic political considerations. Additionally, the need of the hour is to take a nuanced approach with respect to policies which are expected to impact India’s economic aspirations in the coming decade. Given that the 2019 Lok Sabha election are around the corner, the Modi Government will be under pressure to succumb to various protectionist demands. It should take care to avoid such pitfalls if it is to reap economic dividends in its second-term in power which it projects to win.

source: www.dailypioneer.com

0 comments on “GSMA: Free Flow of Data across Borders Essential for Asia’s Digital Economies”

GSMA: Free Flow of Data across Borders Essential for Asia’s Digital Economies

GSMAGovernments in Asia can expand the region’s digital economy and unlock further socio-economic benefits for their citizens by removing unnecessary restrictions on the movement of data internationally, according to a new report released by the GSMA today at the Mobile 360 – Digital Societies conference in Bangkok. The study, ‘Regional Privacy Frameworks and Cross-Border Data Flows’, reveals that striking the right balance in the region’s data privacy regulations could significantly enhance economic activity and future innovation in 5G, the Internet of Things (IoT) and artificial intelligence (AI).

Over the past decade, international data flows have increased global GDP by 10.1 per cent, and their annual contribution to global GDP has already surpassed US $2.8 trillion1 – a larger share than the global trade in goods. The ability to transfer, store and process data enables commerce, spurs innovation, and drives the development of new technologies, platforms, services and infrastructure.

Although the Asia Pacific region has made good progress in the development of data privacy frameworks that protect consumers while also allowing data to flow across borders, the report highlights that variances in data privacy laws across countries is holding back trade and innovation. The report also calls for better links at a regional level between Asia’s two main privacy frameworks – the ASEAN Framework on Personal Data Protection and the APEC Privacy Framework – to enable cross-border data flows.

“The immense economic opportunities arising from the digital economy and data flows are indisputable,” said Boris Wojtan, Director of Privacy, GSMA. “Working towards a pan-Asian approach to data privacy is critical to protecting the rights of individuals and unlocking this economic potential, not only in Asia, but around the world. Regulating people’s personal information by a patchwork of geographically bound privacy laws will only restrict how Asian companies can innovate and bring better products and services to consumers in the future. Now is an important time for all countries to take actions to bridge the differences in their privacy regulation and achieve greater alignment.”

The study evaluated various regional data privacy frameworks and their key principles, while diving down into individual countries to identify national approaches to privacy regulation. It highlights specific steps that all countries, including less developed states, can take to support greater alignment across Asia. Some of the key recommendations included in the report are:

  • APEC and ASEAN governments should consider the options outlined in the study to bridge the differences between their respective privacy frameworks and seek interoperability with other regional frameworks;
  • Countries should advance the alignment of national-level privacy regimes by conducting a landscape analysis to see where they stand in terms of data privacy and reviewing the experience of other governments in the region to understand common paths forward;
  • Policymakers in government and privacy enforcement authorities should support deeper collaboration and cross-learning across the region; and
  • Governments should also draw on non-government privacy experts in the private sector and academia to inform their approaches.

The GSMA also today released its report, ‘Cross-Border Data Flows: Realising Benefits and Removing Barriers’, which describes the benefits of global data flows for individuals, businesses and governments, and explores the damaging impact of increased data localisation measures, which can either require companies to store data locally, or even prohibit companies from transferring personal data altogether. The report calls for governments globally to commit to removing unnecessary localisation measures and enable data to flow cross-border through improved approaches to protecting people’s data.

The ‘Regional Privacy Frameworks and Cross-Border Data Flows’ report is available here in English.

The ‘Cross-Border Data Flows: Realising Benefits and Removing Barriers’ report is available here in English.

source: https://business.financialpost.com

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0 comments on “Unlocking the value of data key to UK economic growth”

Unlocking the value of data key to UK economic growth

The Scottish government has identified data-driven innovation as a key area for potential economic growth, and they plan to invest accordingly. Rachel Aldighieri, MD of the DMA, highlights the need for cross-sector collaboration to discover the true worth of data.

Earlier this month, Theresa May signed the Edinburgh and South East Scotland City Region Deal with Nicola Sturgeon. Along with other cultural and economic developments, the deal seeks to invest in the fintech, tech and AI sectors, and will ring-fence money to develop data storage and analysis centres in the Scottish capital.

Key commitments include £300m for world-leading data innovation centres; a £25m regional skills programme to support improved career opportunities for disadvantaged groups; and £65m of new funding for housing to unlock strategic development sites.

Over recent years, the Scottish Government has regularly issued support for the tech, data and marketing industries, identifying the central belt as a key area for growth. The value of the digital economy in Scotland was estimated to be £4.45 billion in 2014. Data-driven innovation alone has the potential to deliver £20 billion of productivity benefits for the economy over the next five years.

The prize is an innovative, growing economy.

Advertising and marketing are at the heart of the UK economy and play a vital role in driving economic growth. Annual UK exports of advertising services are worth £4.1 bn and every £1 spent on advertising returns £6 to the economy, resulting in £120bn to UK GDP.

The Scottish government’s recent investment should provide a platform for the rest of the UK to build on – a pilot project that will highlight the potential of the data and marketing industries to continue to drive the post-Brexit British economy.

Marketers need training in data-related skills

The publicity of the Edinburgh and South East Scotland City Region Deal should help to put the data and marketing industries on the radar of those making career choices in the future.

However, the industry needs to develop stronger ties with academic institutions to increase awareness about the skills required for a role within the data-driven industries and provide insights into the career prospects that these positions can offer. DMA Talent runs a series of Creative Data Academies around the UK to provide practical learning opportunities for young talent interested in a career in the data and marketing industry. Working with Scottish universities, we’ll be developing this programme with a long term aim of reaching schools and colleges throughout the UK.

As both the Scottish and UK governments have realised, businesses will need to upskill in areas concerned with data and its value to business. The recent ‘Professional skills census 2018’ from the Institute of Direct and Digital Marketing (IDM) highlights ‘data-related skills’ as a key area with skills gaps that need to be addressed. In a post-GDPR era, marketers are held more accountable for their actions, but they must receive relevant training and guidance to better understand their evolving roles – where processing consumer data and interpreting it are now key areas of their job description.

Developing an ethical framework for processing data The DMA’s ‘Data privacy: What the consumer really thinks’ report highlights that 88% of consumers believe transparency is key to increasing trust in how their data is collected and used. The research also revealed an important change in attitudes is underway, with more than half (51%) of the respondents viewing data as essential to the smooth running of the modern economy, up sharply from 38% in 2012.

Ultimately, consumers want more control over their personal information but the industry can do more to increase consumer trust, define best practice, and safeguard data usage. The DMA Code provides a series of core guiding principles to our membership for processing consumer data and it encourages best practice within the marketing and data industries.

We are working with our members to give businesses a better understanding of the values of data and shape the responsible route forward. However, an ethical framework for processing data that extends beyond our industry will be key if the UK economy is to thrive on the opportunities presented by technological advances.

The government’s development of the Centre for Data Ethics and Innovation will go some way to dealing with the ethical issues raised by rapidly-developing technologies such as artificial intelligence (AI).

The Centre for Data Ethics and Innovation will encourage discussion and research into how data and AI are used in terms of governance and regulation, but more investment will be required for the rest of the UK to follow Scotland’s lead in seeking data-driven innovation.

It is only by putting the customer first and embedding an ethical approach to business culture that consumers and organisations alike will be able to take full advantage of the data revolution. If we don’t get the balance right between data privacy and data-driven innovation, personal data may be misused by some businesses as technology advances. Technology often shapes an organisation’s customer engagement strategy, but our research has shown that trust will influence how receptive and likely consumers are to use it. A practical, universal framework is needed but this will require investment and cross-industry collaboration.

The department of Digital, Culture, Media, and Sport (DCMS) works closely with the DMA on championing innovation and evolution in the data and marketing industries, and the DMA welcomes future discussions around how we can develop and implement such a framework.

To propel the discussion forward, the DMA and DMA Scotland will launch a new initiative entitled Value of data.

This work will seek partnerships with government, businesses and educational institutions to develop a consumer-focused mindset within the data and marketing industries.

Led by Chair Firas Khnaisser (Standard Life) and Vice Chair Derek Lennox (Sainsbury’s Bank), Value of data will help businesses to responsibly deliver value to their customers.

The campaign will provide an engaging, navigable roadmap through a challenging ethical and legal landscape to allow innovative and data-led approaches to customer engagement to thrive. And we’ll do it all with a future-focus: nurturing local and young talent.

Ultimately, the Value of data will develop a true appreciation of the worth of data so businesses can build stronger, more profitable relationships with consumers – responsibly, sustainably and ethically.

The DMA are ready to work alongside our membership, the wider marketing industry, and UK Government to make this a reality in the not too distant future.

source: www.thedrum.com

0 comments on “How cybersecurity and data storage laws could pull the plug on Southeast Asia’s digital economy”

How cybersecurity and data storage laws could pull the plug on Southeast Asia’s digital economy

southeast-asiaJeff Paine says governments in Southeast Asia are keen to capitalise on the opportunity presented by the digital economy, but their rush to regulate data flows and storage will hit start-ups and small local firms hard.

Southeast Asia is one of the most diverse regions in the world, a handful of countries with thousands of languages and cultures, yet all having one thing in common – bold ambitions for their digital economies.

From the establishment of digital agencies like Malaysia Digital Economy Corporation in Malaysia and the Digital Economy and Promotion Agency in Thailand, to charting impressive road maps such as Thailand 4.0 and Making Indonesia 4.0, many governments in the region are prioritising capturing as much of the region’s US$200 billion digital economy opportunity as possible.

What isn’t clear is how these bold aspirations will be achieved.

Despite the inherent benefits of digital technologies and the internet, many governments are pursuing policies that will limit the use of these technologies. Driven by pressure to address specific and immediate challenges including cybersecurity, data protection, privacy and misinformation, governments fail to consider the long-term impact of these laws on economic growth, jobs and investment.

Vietnam’s recent Law on Cybersecurity and Indonesia’s Government Regulation 82 are examples of this, with provisions including restrictions on data flow and content, requirements for foreign companies to set up local offices and local data storage requirements. Meanwhile, proposed rules in Thailand subject over-the-top (OTT) service providers to tax, security and content regulations.

The impact of these regulations goes far beyond the information and communications technology industry, given that virtually every business today uses the internet and digital technology.

For foreign businesses, restrictive, too broad and unclear regulations create uncertainty and an unfriendly investment climate. Multinational companies unable to make long-term financial decisions are likely to shift their investments to countries with more flexible regulatory environments that support the development of a digital ecosystem.

Local businesses, like small and medium-sized enterprises and entrepreneurs that comprise 95 per cent of Southeast Asia’s economy, will bear the brunt of poor policies. Restrictions on cross-border data flows, digital tax and local data storage, will prove difficult to comply with.

Many small businesses depend on digital services and platforms such as cloud for data storage and collaboration, online marketplaces for e-commerce, social media for communication and marketing, and OTT platforms to reach customers at scale. Such laws will increase the cost of doing business, create barriers for expansion beyond borders and are likely to block small players from competing in the global marketplace.

For example, if a neighbouring country enacted similar provisions to Vietnam’s cybersecurity law, a Vietnamese software start-up would be unlikely to be able to afford data storage facilities and local offices in locations outside Vietnam – curbing regional or global expansion plans.

With significant economic prospects at stake, and the challenges of security, privacy, data and misinformation in mind, governments must find better ways to manage risk without hampering growth.

Southeast Asian governments can learn from how larger, developed economies manage emerging technology. For example, Thailand has looked towards the European Union’s implementation of the General Data Protection Regulation as a basis for their data protection laws.

On taxation, intergovernmental organisations such as the Organisation for Economic Co-operation and Development provide useful guidance in key areas such as the need to create consistency between countries on cross-border digital taxes. Unilateral moves like Australia’s goods and services taxin July 2018 on low-value imported goods is likely to pose compliance challenges and higher costs for small businesses in the long run.

Instead, a cross-sectoral range of agencies, ministries and industry players could together craft comprehensive policies that manage risk and promote growth. A good example of this is Singapore’s approach to digital taxation and preventing misinformation.

The digital economy is uncharted territory for most. There is a small window of opportunity now to ensure smart regulations and policies are in place to secure future growth. Technology companies and industry groups can work with governments, ensuring that the opportunities and benefits of the digital economy are realised and not wasted.

source: www.scmp.com

0 comments on “Benin is the latest African nation taxing the internet”

Benin is the latest African nation taxing the internet

taxationBenin has joined a growing list of African states imposing levies for using the internet.

The government passed a decree in late August taxing its citizens for accessing the internet and social-media apps. The directive, first proposed in July, institutes a fee (link in French) of 5 CFA francs ($0.008) per megabyte consumed through services like Facebook, WhatsApp, and Twitter. It also introduces a 5% fee, on top of taxes, on texting and calls, according to advocacy group Internet Sans Frontières (ISF).

The new law has been denounced, with citizens and advocates using the hashtag #Taxepamesmo (“Don’t tax my megabytes”) to call on officials to cancel the levy. The increased fees will not only burden the poorest consumers and widen the digital divide, but they will also be “disastrous” for the nation’s nascent digital economy, says ISF’s executive director Julie Owono. A petition against the levy on Change.org has garnered nearly 7,000 signatures since it was created five days ago.

The West African nation joins an increasing number of African countries that have introduced new fees for accessing digital spaces. Last month, Zambia approved a tax on internet calls in order to protect large telcos at the expense of already squeezed citizens. In July, Uganda also introduced a tax for accessing 60 websites and social-media apps, including WhatsApp and Twitter, from mobile phones. Officials in Kampala also increased excise duty fees on mobile-money transactions from 10% to 15%, in a bid to reduce capital flight and improve the country’s tax-to-GDP ratio.

Digital-rights advocates say these measures are part of wider moves to silence critics and the vibrant socio-political, cultural, and economic conversations taking place online. The adoptions of these taxes, they say, could have a costly impact not just on democracy and social cohesion, but on economic growth, innovation, and net neutrality. Paradigm Initiative, a Nigerian company that works to advance digital rights, has said it was worried Nigeria would follow Uganda’s and Zambia’s footsteps and start levying over-the-top media services like Facebook and Telegram that deliver content on the internet.

But taxing the digital sector might have a negative impact in the long run. Research has already shown that Uganda’s ad hoc fees could cost its economy $750 million in revenue this year alone. “These governments are killing the goose that lays the golden egg,” Owono said.

source: www.qz.com

0 comments on “Telkom SA calls for digital economy summit (South Africa)”

Telkom SA calls for digital economy summit (South Africa)

-fs-Sipho-Maseko-1-2018.xlTelkom South Africa has called for a multi-sectoral digital economy summit to be convened and attended by operators, the industry regulator, vertical market representatives, tertiary education institutions and other telecommunications industry stakeholders.

In his keynote address to delegates at the 2018 Southern Africa Telecommunication Networks and Applications Conference (SATNAC), Group CEO Telkom SA Sipho Maseko said this would provide a forum to address the question of how to generate economic growth.

The question of how relevant stakeholders will contribute had to be asked and answered.

These questions are not only for operators said Maseko, and it is envisaged that the platform would serve as a forum for all stakeholders to state their position.

Maseko identified several drivers of economy including investment in infrastructure to deliver ubiquitous connectivity, skills and subject matter experts across the spectrum, fair competition and regulation.

In addition to the role of data within an ever-changing market and the influence of the digitised consumer, Maseko also touched upon the issue of regulation.

Telkom SA remains embroiled in a dispute with ICASA (Independent Communications Authority of SA) regarding plans to reduce call termination rates – the price mobile and fixed network operators charge each other for terminating calls between networks.

According to a recent ITWeb report, the company has affirmed that unless the regulator’s draft call termination rates are not amended, it may have to change its business model, stop operations in rural areas and possibly have to cut jobs.

It has reportedly issued a counter-proposal to ICASA and stated that under the regulator’s proposed changes, it would “continue to effectively subsidise the larger mobile network operators.”

Government’s intention and objectives behind the wireless open access network proposed in the draft Electronic Communications Amendment Bill has also attracted widespread attention within the local telecommunications space.

“Regulation and policy can be a big enabler for data growth… but regulation must keep up with the market and tech advances. Regulators sometimes almost exclude themselves from the debate. The question is how do we get the economy to recover?” said Maseko.

He also cautioned that call termination rates and proposals have not recognised the fact that the market has converged, and regulation has to enable investment.

source: www.itwebafrica.com

0 comments on “Regulating a Digital Economy: An Indian Perspective”

Regulating a Digital Economy: An Indian Perspective

The “fourth industrial revolution” which has been characterised by end-to-end digitalisation has led to unprecedented increases in connectivity and data flows. By 2017, Asia had the largest number of internet users in the world, with 1.9 billion people online.

Joshua Meltzer, Senior Fellow, Global Economy and Development at the Brookings Institution, spoke about regulating the digital economy at a Brookings India Development Seminar on April 20, 2018.

In 2014 cross-border data flows were 45 times larger than in 2005, raising global gross domestic product (GDP) by approximately 3.5 per cent, equivalent to $2.8 trillion dollars in 2014. According to the World Bank, it is expected that a 10 per cent increase in internet penetration in the exporting country would lead to a 1.9 per cent increase in exports. In fact, in the U.S. alone internet and data use increased GDP by 3.4-4.8 per cent, as per estimates of the United States International Trade Commission.

In India, the digital economy is expected to contribute $550bn-$1tr in GDP by 2025, and add 1.5-2 million jobs by 2018 through its Digital India initiative.

The economic opportunities from technologies such as cloud computing, big data and the internet of things are also not limited to the IT sector but are economy-wide, including in sectors such as manufacturing and agriculture, Meltzer argued based on his working paper “Regulating for a digital economy: Understanding the importance of cross-border data flows in Asia”.

Over 40 per cent of India’s goods and services exports consist of software services and IT-enabled services (ITES) from financial analysis, accounting, medical transcription to the provision of applications for smartphones. Cross-border data flows remain vital for India’s exports of services.

Governments, however, are increasingly introducing measures that restrict data flows.

In order to build the digital economy, India will need to determine a fit-for-purpose regulation especially in privacy, consumer protection, intellectual property and financial regulation.

Cross-border data flow restrictions can take one of several forms, from restrictions on data being transferred outside national borders and requiring prior consent for global transfers. According to a study by Bauer et al, the cost of proposed and enacted data localisation measures in India would reduce its GDP by 0.1 per cent.

Meltzer argued that restrictions on cross-border data flows harm both the competitiveness of the country implementing the policies and other countries that rely on that data from those countries.

In India, a few examples of government regulations and rules include the Information Technology Rules (2011) that limits cross-border transfer of sensitive personal data. The National Data Sharing and Accessibility Policy (2012) which requires government data be stored in India, particularly for cloud providers. The Companies (Accounts) Rules (2014) which requires backups of financial information, if stored overseas, to be stored in India. The National Telecom M2M roadmap (2015) which requires gateways and app servers that serve Indian customers to be located in India.

Data flow restrictions are enacted with several goals in mind – from protecting citizens’ personal privacy, to ensuring national security and protecting local businesses. The capacity to move large quantities of data seamlessly and rapidly across borders can undermine domestic regulatory standards in areas such as privacy and consumer protection.

Meltzer argued that such data restrictions limit access to digital commerce networks and online resources and the ability of businesses to synthesise large data sets, on a wider scale they affect business models, reduce productivity, innovation as well as business competitiveness by forcing businesses to invest in lower quality data facilities.

So, while this wave of digitisation has massive economy wide positive impacts, data localisation could have massive economic costs, he added.

Meltzer recommended that the realisation of legitimate regulatory goals such as privacy and security must happen alongside maximising the economic and trade opportunities cross-border data flows offer. The focus for regulators needs to be using existing technologies to harness economy-wide benefits.

Robust domestic privacy laws that manage risks and maximise opportunities and the proper enforcement of security protocols through laws offer a way of ensuring data restrictions don’t negatively impact businesses and trade flows.

At the centre of all of this lies building a trustworthy environment where mutual assistance is offered and data-sharing agreements and contracts are negotiated bilaterally and multilaterally. In essence, government backdoors that erode trust in the internet must be avoided under any circumstances.

The discussants during the seminar provided unique perspectives and critiques to some of Meltzer’s arguments.

Former diplomat Asoke Mukerji spoke about how interdependent countries were when it came to data flows. He focused on how in addition to maximising the impact of data flows for economic growth, India also needs to look at data and its flow in terms of its socio-economic sustainable development goals, anchored in its inclusive “Sabka saath, Sabka vikas” policy.

The focus of data and data flows in India remains as much on the citizen as on the market, he said.

Bringing an aspect of human nature as well as the issue of the concentration of data in the hands of a few private players, Mudit Kapoor, associate professor at the Indian Statistical Institute, warned of the pitfalls of this free market of digital data flows.

He pointed out that flow of data is distinct from flow of goods and services across borders. This is largely due to the inter-relationship between industry and security concerns of each country. Given the asymmetry in data-sharing rules between companies and government agencies across the world, we are likely to over-simply the true and complex nature of international data flows by treating it like any other commodity or services.

Kapoor also highlighted the markets for fake news and the limited capacity of the governments to regulate such markets. These can have phenomenal implications on institutions in democratic countries.

Avik Sarkar, OSD of the Data Analytics Cell at NITI Aayog, spoke about the digitisation efforts of the government, giving examples of how machine-learning, artificial intelligence and big data analytics could help bring about profound impacts on policies and programmes, especially those in health and early disease prevention.

In order to build the digital economy, India will need to determine a fit-for-purpose regulation especially in privacy, consumer protection, intellectual property and financial regulation. The big push needs to be from the top, ensuring governments at all levels – national, state and local — go digital and consider the delivery of services through digital technologies.

Overall the vibrant debate on this forum and many alike on cross-border data flows in India remains a part of a larger global discussion on the need for an international framework to provide predictability, security and stability of cyberspace.

source:www.brookings.edu

0 comments on “Competition challenges in the digital economy”

Competition challenges in the digital economy

Competition21-750x400Slow productivity growth and rising income inequality have shaped the world economy in a time of rapid technological change. A variety of explanations have emerged to help us understand these related trends, but one overarching theme is the decline in competition.

The combination of increasingly concentrated markets, rising market power of large firms, and slowing business dynamism suggest that competition among firms is weakening. The concern is that the rise of dominant firms will hinder the diffusion of technology and exacerbate income inequality.

Adding to these concerns are two key features of the digital economy—the potential for scale with digital platforms and the growing importance of intangible capital—that, by their very nature, lend themselves to bigger and more dominant firms.

These characteristics of the digital economy present challenges on how we think about and implement competition policy. Policies aimed at ensuring a level playing field and fostering a dynamic and inclusive economy will therefore need to adjust to better reflect a growing reality.

POTENTIAL FOR SCALE WITH DIGITAL PLATFORMS

First, market concentration is especially high in markets with large returns to scale and network effects. Going digital can come with high capital expenditures, like setting up data centers and other digital infrastructure. But it also comes with the ability to reproduce digital offerings instantly and at low or zero marginal cost, implying large returns to scale and lower prices for consumers. When network effects are involved, the potential returns to scale are even greater.

The argument for bigger firms in these markets is that consumers are the biggest winners. Free digital services and a plethora of user data used to customize and cross-sell products help raise consumer welfare and offer greater choice. (In some cases, firms controlling “big data” can extract more consumer surplus through sophisticated algorithmic pricing and customization of offerings.)

Small businesses and entrepreneurs also benefit, the argument goes. Digital giants like Amazon, Google, and Microsoft, among others, reduce startup costs for small firms by offering cloud services and open-source software, make it easier to reach distant markets through their platforms, and offer venture funding and financing.

Due in part to the potential to scale up quickly, the threat of disruption is higher in the digital economy than in the past. Many argue that this threat strengthens competition among big firms as well as smaller firms who can unseat the giants (see herehere, and here).

However, it is not so clear that these arguments for bigger firms always hold. Less than one percent of startups end up as $1 billion companies and are often acquired or imitated by the giants along the way. In addition, industry lines are increasingly blurred as big firms leverage their user’s data to offer a broader range of goods and services, providing more valuable data on spending habits, and, ultimately, reinforcing the competitive advantage of big firms across industries.

A challenge for policymakers and regulators comes when assessing who indeed the biggest beneficiaries are. Diane Coyle of the University of Manchester points out that although the network effects of digital platforms produce real economic welfare gains, it is unclear how big those gains are or who captures them. Advertisers also place great value on free services and, as Luigi Zingales and Guy Rolnik of the University of Chicago notes, users do pay for these services in the form of very valuable information.

More economic tools are needed to quantify consumer benefits in such markets where traditional pricing does not provide the same kind of signals on market power as in other industries. Such assessments would better help policymakers and regulators ensure a level playing field and better distinguish between competitive and anti-competitive behaviors.

GROWING IMPORTANCE OF INTANGIBLE CAPITAL

A second feature of the digital economy that advantages larger firms is the growing importance of intangible capital.

Unlike tangible capital like buildings and equipment, intangible capital is not physical. It consists of ideas, branding, business processes, software, supplier relationships, licensing agreements, and other immaterial assets that generate value for a firm.

As digitization changes business models, firms are placing greater emphasis on intangibles. In the U.S., U.K., and some European economies, intangible investment already exceeds investment in tangibles.

As Jonathan Haskel and Stian Westlake describe in their book Capitalism Without Capital, there are four key economic properties of intangible assets that differentiate them from tangibles. Those properties are “scalability” (multiple people can use them simultaneously), “sunkenness” (the cost of producing them is mostly sunk), “spillovers” (easy for others to appropriate), and “synergies” (can be combined effectively).

With these properties, firms can achieve much larger scale, go to great lengths to prevent spillovers to competitors who can appropriate their sunk investments, and acquire other firms with intangible assets that offer synergies (like human capital or branding). Haskel and Westlake argue that these properties help explain the rise of superstar firms, more mergers and acquisitions, and higher market concentration in industries with a larger share of intangible investment.

In industries with greater intangible investment, small firms may have a harder time finding financing to invest and boost productivity. Small firms typically rely on bank lending that often require collateral from borrowers. But intangibles cannot offer physical collateral, are hard to measure, and, in the case of investments in knowledge and research and development, can easily be appropriated by others. These characteristics of intangibles make private equity financing more attractive for intangible-heavy firms, not only to undertake investments in assets where the cost is mostly sunk, but also to have an easier time protecting intellectual property when privately held.

In addition, private equity financing and venture capital for small firms can be difficult to scale up. These difficulties are partly due to the importance of social relationships and the large role of public subsidies in supporting a vibrant venture capital industry, which takes a long time to develop.

Large firms, on the other hand, can use their economies of scale (and buying power to acquire firms) to capture spillovers and exploit synergies. They also more easily attract capital.

LOOKING AHEAD

Are we headed into an economy dominated by big firms? Even techno-optimists, who believe that it is only a matter of time before the potential for today’s technological advances drive faster growth, are pessimistic on the implications for distribution. Concentrated markets may become the new normal. Policies would need to adjust to ensure level playing fields. In addition, better intellectual property protections, broad and inclusive financing ecosystems, new measurement standards, and greater investment in skills are examples of policies better suited for an intangible economy that is dynamic and inclusive. The possibilities are limitless, but the promise won’t realize itself.

source: www.brookings.edu

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Tax Department’s Consultation On Digital Taxation May End Up Being An Academic Exercise, Experts Say

taxationTechnology giants like Facebook, Google, Amazon, Alibaba and other such digital companies derive considerable value from a large user base. For instance, some digital companies sell user data for targeted advertising. It’s this value that nations now want to tax.

Europe, for instance, has proposed a tax on turnover. Australia is mulling a tax on digital advertising. Singapore has announced a sales tax on digital services, starting 2020. India isn’t far behind either.

Digital advertising on foreign platforms is already under the tax net, also known as the equalisation levy. But now, India now wants to tax the business profits of digital companies, for which the taxman has reached out to various stakeholders for consultation. Experts told BloombergQuint the move will run into two problems: attribution of profits among countries i.e. who can tax how much, and treaty troubles.

Digital Services: What Gets Taxed?

Two years ago, the government imposed a 6 percent tax on digital advertising, which is attracted when an Indian resident or a non-resident with a fixed place of business in the country advertises online with a service provider with no permanent establishment in India. Permanent establishment is, in tax parlance, a fixed place of business. The levy is applicable if the transaction value exceeds Rs 1 lakh in a financial year. Reportedly, this levy has added close to Rs 3,000 crore to tax collections in the last two years.

Equalisation levy is applicable on advertising revenues and the administration of it has been smooth in the last two years, Sudhir Kapadia, partner and national tax leader at EY India, told BloombergQuint. It’s a tax on business-to-business transactions and the law has ensured there’s no double taxation, he said.

There is no income tax in the hands of a non-resident once the equalisation levy is discharged. So, it is a proxy for any kind of income tax liability that can be levied on the company concerned.Sudhir Kapadia, Partner, EY India

What About B2C Transactions?

Enter, Significant Economic Presence. In budget 2018, the government proposed to get its fair share of tax from business-to-consumer transactions by introducing the concept of significant economic presence. According to the finance minister, the idea is to tax profits of those digital businesses that don’t have a physical presence in India but derive significant economic value from the country.

India’s belief is that we follow strict source-based rules of taxation; our domestic law and treaty definitions of permanent establishment have lost their relevance because of the digital invasion, Mukesh Butani, managing partner at BMR Legal, said.

A lot of foreign luxury goods and garment manufacturers don’t have a physical presence in India. You can use an Amazon platform and order those goods, or you can go to the company’s website and order. But you can’t tax those activities in India, assuming they don’t have presence here. Under this significant economic presence, such activities will come under the tax net.

Mukesh Butani, Managing Partner, BMR Legal

What Does The Tax Department Want To Know?

In one word, thresholds. The department has asked for consultation on:

  • Revenue threshold of transactions with respect to physical goods or services carried out by a non-resident in India.
  • Revenue threshold of transactions pertaining to digital goods or services or property, including the provision of download of data or software.
  • Threshold for number of “users” with whom systematic and continuous soliciting of business activities is done through digital means.

To begin with, the phrase used in our law is significant economic presence and not just digital presence as is the case in Europe, Kapadia said. The first element on which consultation is sought is about transactions involving physical goods and so, our approach is far more overarching, he added.

The budget memorandum only talked about digital economy, but this would include all transactions of import of goods, which currently attract only customs duty. For example, EPC contracts, manufacturing, supplies from vendors etc who do not have a presence in India.

Sudhir Kapadia, Partner, EY India

If India is determined to bring this, revenue threshold for digital goods and services and user threshold can be akin to what the E.U. has proposed, he said.

Europe has proposed a three percent tax on businesses with E.U. digital revenues of over 50 million euros and total global revenues of over 750 million euros. Revenues derived from online advertising, sale of user data and online marketplaces will attract this levy.

So, What’s The Problem?

The first is profit attribution. Or, how should governments determine the revenue attributable to digital activities in their country.

It’s going to be very difficult for India or any other country to ascertain this since the conventional principles of permanent establishment won’t apply to digital businesses, Kapadia said. He explained that data about users in other countries, revenues collected in other countries arising from that user data isn’t easy to get despite the exchange of information arrangements.

 Currently, India has two provisions for attribution. Rule 10 of the Income Tax Rules which essentially says that revenues from India divided by global revenues multiplied by global profits should be the taxable base in India. This, in a brick-and-mortar space, poses enough challenges. It would be impossible to apply this principle in a digital business. Second is the arm’s length principle under transfer pricing. That can’t be the answer either since the entire functions, contractual and legal risks are outside of India in the digital business context.

Sudhir Kapadia, Partner, EY India

The second issue would be tax treaties. If the treaty problem isn’t addressed, this consultation will just be an academic exercise, Butani said.

When the law was passed in Budget 2018, it clearly said India is proposing this law in order to be prepared for the changes that occur in double-tax treaties, Butani said. This subordinate legislation that the department is proposing won’t be useful in situations where the non-resident tax payer is from a country that has a tax treaty with India, he added.

The definition of permanent establishment under the tax treaties don’t contemplate digital transactions. The only way is to amend the treaties using the multilateral instrument tool proposed by the Organisation for Economic Co-operation and Development. But if the treaty partner hasn’t signed up to MLI, the provision under the domestic law won’t help.

Mukesh Butani, Managing Partner, BMR Legal

You’re looking at a scenario where some treaties will trigger a digital permanent establishment and some treaties won’t, he said. So, how will a change in the domestic law affect the taxable position under these treaties, he added.