GST For Digital Foreign Firms
Source: Business Standard
GS III: Economy
Overview
- News in Brief
- About Online Information and Database and Retrieval Services (OIDAR)
Why in the News?
From October 1, foreign companies such as Netflix, Spotify, and Hotstar, providing a wide range of digital services to users in India, will face stricter compliance norms on goods and services tax (GST).
News in Brief
- They will have to pay 18 per cent GST regardless of the purpose.
- Current Tax
- Foreign firms providing service to non-GST registered recipients such as the central and state governments and individuals for any purpose other than business were exempt from the tax.
- It is not mandatory to levy the tax on unregistered recipients, which include a large consumer base.
- The Central Board of Indirect Taxes and Customs (CBIC) notified the exemptions will no longer be applicable to OIDAR or Online Information and Database and Retrieval Services.
- How will this help?
- The move will help investigators to enforce the tax on foreign firms by nudging them to be GST-compliant through registering themselves, remitting taxes, and filing returns under GST provisions.
- This will remove ambiguity, improve overall compliance in the digital space, and plug loopholes.
- Why the move?
- OIDAR service providers such as OTT (over-the-top) platforms and social media platforms earn substantial revenue from their Indian customer base.
- For instance, Netflix, Inc., headquartered in the US, has a significant user presence in India.
- It is subject to IGST on sales to unregistered individuals, necessitating comprehensive record-keeping practices.
- Who will fall in the tax?
- Online education services, gaming, and advertising, which were earlier argued to be outside the scope of OIDAR services, will now fall within the amended definition.
- Livestreaming of events and classes might still continue to be exempt but providing access to the library or recorded videos would be subject to GST.
About Online Information and Database and Retrieval Services (OIDAR)
- Online Information Database Access and Retrieval Services, or OIDAR for short, are a class of online services that recipients can access and use without physically interacting with the service provider.
- For instance, downloading an e-book from the internet and paying for it would count as receiving OIDAR services from the client.
- Which are these services?
- Advertising on the internet
- Providing cloud services
- Provision of e-books, movies, music, software and other intangibles through telecommunication networks or the internet
- Providing data or information, retrievable or otherwise, to any person in electronic form through a computer network
- Online supplies of digital content (movies, television shows, music and the like)
- Digital data storage
- Online gaming
How is OIDAR different from other services?
- OIDAR services are designed to be delivered remotely from outside the taxable area over the Internet. Similar services rendered to recipients in India by an Indian Service
- Provider from inside the taxable region would be subject to taxation.
- Furthermore, these services would be subject to reverse charge taxation if obtained by an Indian corporation that is registered.
- If these services were not included in the tax net, the foreign providers would receive an unfair tax benefit.
- The Compliance Online Information Data Base Access and Retrieval Services in GST verification method also becomes challenging because the service provider is foreign and could not have a presence in India.
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