Union Government is in the process of rolling out a revised Tax structure applicable to multinational tech companies that have been reaping heaps of profits from domestic consumers in India.
Under the proposed tax policy, online platforms having a user base of more than 5 lakh and revenues exceeding Rs 20 crores will be charged under a different tax bracket reports ET.
Tech companies such as Twitter, Facebook, and Google are likely to shell out an income tax of 35% on the profits earned by them in India territory.
These new developments come under the Significant Economic Presence’ (SEP) concept laid out in the Union Budget 2018 which is likely to become a part of the draft Direct Taxes Code. The new DT code is a set of consolidated tax laws which will be submitted to the Finance Ministry for discussion.
In the Ministerial Symposium on International Taxation held at G20 summit last month, Finance Minister Nirmala Sitharaman highlighted the major issues related to remittance policies and taxation on the revenues of tech giants such as Amazon, Twitter, Facebook, and Google,
Countries like Japan, France, and United Kingdom rallied along with India to reach out to all the G20 members to adopt ‘Significant Economic Presence’(SEP) principal and work towards reformed taxation code.
Multinational tech companies have been facing flak for not paying their fair share of direct taxes while they are earning a windfall of revenues from providing advertisement services in India.
They’re using the loophole of using “purchase of advertising space” as an expense paid to their holding entities to move money out of India while paying minimal taxes.
For instance, Google remitted more than $2 billion as expenses paid outside India between FY14-18. But the tax department had previously contended that these payments are actually royalties which can be charged to tax and not cost to these firms, resulted in levying of equalization duty of 6% on such payments.
Similarly, there are reports of the EU proposing a 3 percent tax on such revenues and the UK is likely to introduce its own “digital services tax” by April 2020.