India Finds Zoom, Tinder, Tumblr Among Firms Not Paying GST On Digital Services: BQ Exclusive
India has identified several overseas firms including Zoom, Tinder, Skype, and Tumblr that are allegedly not paying indirect tax, according to a senior government official, as the nation continues to plug gaps that cause loss of revenue.
Such companies are required to register as Online Information Database Access and Retrieval service providers and pay integrated goods and services tax at 18%, according to the law. The companies that don’t have a physical presence in the county can appoint a representative to register on their behalf.
The government found most companies aren't registered because of lack of awareness, and plans to make them aware of the current provisions of the law, the official quoted earlier said on the condition of anonymity as details aren't public yet. In some cases, even some registered companies are selling products through their websites but the payment is routed to a foreign bank account which escapes the GST net, the official said, adding that the government is contemplating what action needs to be taken.
If the companies don't comply, the official said, the tax department can ask the Information Technology Ministry to ban these apps or websites. To be sure, the government hasn't issued any notices yet.
India has been trying to improve GST compliance since its rollout three years ago. As the government missed the budget targets in the previous fiscal and is expected to again fall short in the pandemic-hit year, it will be looking to check any loss of revenue.
There is a huge potential to collect tax from these service providers in India and plug the leakage in the system, said the official. Companies providing online services can recover the tax from customers and so it won’t be a burden on them, the official said.
The Finance Ministry, Tinder, and Tumblr have yet to respond to BloombergQuint’s emailed queries.
A Zoom spokesperson said the company has an entity in India which is “registered under, and [is] compliant with, the Indian GST regulations". Prior to setting up Zoom India, the videoconference service provider "issued invoices to Indian businesses and, according to the Indian GST regulations, such businesses are required to pay GST".
Skype Luxembourg is registered in India as OIDAR service provider and is paying IGST at 18% from December 2016, and is depositing monthly GST payments, the company said in an emailed response, adding that Microsoft Corp. conducts its business in full compliance with the local laws.
How ‘Netflix Tax’ Works
Dubbed ‘Netflix tax’ globally, the levy has been introduced in Norway and South Africa and some U.S. states to tax video streaming, gaming and other such digital services. In India, existing provisions under GST allow to levy the indirect tax on online service providers.
It's collected by the country of the consumer in cross-border business-to-consumer transactions. Domestic suppliers of such digital services pay GST in India, giving overseas players an unfair advantage, the official quoted earlier said.
It's, however, different from the equalisation levy or ‘Google Tax’ introduced in India in 2016, and whose scope was expanded in 2020 to include foreign e-commerce companies.
Overseas companies providing digital services to individuals in India have to either register locally or appoint a representative or an agent to deposit GST.
The government notified Principal Commissioner of Central Tax, Bengaluru for registration, the official said. The number of such service providers rose from 210 who paid Rs 452 crore as GST in 2018-19 to about 298 who paid Rs 1,012-crore tax in 2019-20.
Many subscription-based gaming, news websites have been found not complying with the GST provisions, the official quoted above said.
According to Udit Gupta, partner at Udit Kishan and Associates, companies like Zoom.us are earning substantial revenue in India but are not complying with GST law and the government is losing tax revenue. “Most of these companies may not be aware of such a provision of law in India,” he said, adding they can ‘easily’ comply.
But Rajat Bose, partner at Shardul Amarchand Mangaldas & Co., disagreed. Foreign companies having to register in India or appoint a representative on their behalf is an onerous condition, he said. “It’s challenging for foreign companies to appoint a representative and share their financial information with the representative,” he said, adding that the firms will then have to constantly monitor the representative.
Bose said companies also fear that sharing financials with the government may invite scrutiny by the Income Tax Department.