Overseas companies that advertise, stream and sell goods online targeting customers in India will soon have to pay local taxes under proposed changes to the Income Tax Act in the Finance Bill.
The digital tax framework, which is currently being discussed at the Organisation for Economic Cooperation and Development (OECD), will be implemented by the Indian government once it gets finalised.
Last year in October, the OECD had proposed regulations on taxation of digital companies. It had appealed for a fair allocation of taxing rights in an increasingly globalised world and to tax a part of the global profits of giant multinationals and fix rates of return on their local activities.
The Indian government, on a similar line, has been for the past couple of months mulling rolling out a revised tax structure applicable to multinational tech companies.
The Finance Bill proposed to add new source rules introducing ‘income attributable to operations carried out in India’ clause. It will include income from the sale of data collected from an Indian resident or person using an Indian IP address, advertisement targeted at Indians and earnings from the sale of goods or services using data collected from Indian residents.
The framework will allow the government to tax foreign e-commerce firms selling goods such as Amazon and Alibaba, and firms offering streaming services like Netflix, Amazon and Disney besides companies earning through targeted advertisements in India such as Google and Facebook.
Global digital giants have often been accused of not paying a fair share of direct taxes in comparison to the earnings they make through their services in countries around the world.
The latest move will add to India govt bid to widen tax net on income earned by foreign firms via Indian consumers. In 2016, India had imposed a 6% equalisation levy on overseas firms.
Industry observers believe that the move may widen India’s tax net covering overseas digital giants but at the same time, it will raise concerns over tax treaty implications.