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Airbnb, Netflix, others bill to rise with new tax

The amended Finance Bill, which was approved by Parliament on Monday, with effect from April 1, an equalisation levy of 2% will be applicable on sales made by foreign ecommerce companies operating in Asia’s third-largest economy.

Last Updated: Mar 25, 2020, 02.32 PM IST
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The impact of the levy on global tech and consumer tech firms operating in India is still being worked out, but there are concerns of a pushback.
NEW DELHI/BENGALURU: Indian consumers could face an increase in charges for services such as Airbnb, Netflix and Booking.com, among others, after the government expanded the scope of its equalisation levy to all overseas ecommerce transactions originating from India.

According to the amended Finance Bill, which was approved by Parliament on Monday, with effect from April 1, an equalisation levy of 2% will be applicable on sales made by foreign ecommerce companies operating in Asia’s third-largest economy. The levy is expected to hit all companies with sales of more than Rs 2 crore in the previous financial year. According to experts, technology, internet and Software-as-a-Service (SaaS) companies — from Microsoft, Adobe and Google to Facebook — all of which offer services through their overseas arms, are likely to be impacted by the levy, also known as the “Google Tax”.

Additionally, media firms that have a subscription-led model and have paying customers, will also come under the new rule, industry experts told ET. The impact of the levy on global tech and consumer tech firms operating in India is still being worked out, but there are concerns of a pushback.

“If this creates a compliance or tax burden on foreign ecommerce operators, they may take a call on restricting access to Indian users,” Moksha Bhat, partner at AP & Partners, said. Emails sent to streaming giant Netflix, home-sharing major Airbnb and online travel behemoth Booking.com, seeking clarifications, did not elicit responses till the time of going to press.

The equalisation levy was introduced in 2016 and was previously applicable only to advertising and related services. This has now been expanded to cover all sorts of digital ecommerce transactions into India, as well as those transactions that use Indian data.

Apart from e-commerce companies, the new provision could apply to companies which have digital businesses in India such as travel, hotel room booking, gaming, etc, said Neeru Ahuja, Partner, Deloitte India.

Additionally, ecommerce operators will not have recourse to favourable tax treaty provisions and will also be required to make compliances in India, potentially raising challenges.

India’s move, according to Ankur Pahwa, who leads EY’s ecommerce practice, will result in, “the cost of products going up, along with the cost of compliance for ecommerce companies. This automatically means that some of that cost will get passed through to users.”

Pahwa added that unlike the 6% equalisation levy on digital advertising, the new proposal will require overseas companies to set up compliances in India. More than the 2% levy, the cost of complying with India’s laws will hurt companies.

India being one of the fastest growing markets for online services such as content streaming has enjoyed among the lowest rates charged by such firms. For instance, while Apple charges customers in the US $9.99 a month for its music streaming service, in India it charges customers just Rs 99, or $1.3 for the same monthly service.

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