India Ends Tax Exemption For OIDAR; Amazon, Facebook & X Will Face 18% IGST
Recently, the Central Board of Indirect Taxes and Customs issued a notification specifying that Overseas Online Information and Data Access Retrieval (OIDAR) service providers would no longer be exempt from the Integrated Goods and Services Tax (IGST).
Previously, Overseas OIDAR service providers located in non-taxable brackets were exempt from tax collection when their services were received by government bodies, government authorities, or individuals for non-business purposes. Taxation was only applied to business-to-business (B2B) services.
Now, platforms like X, Amazon, and Facebook may be required to pay 18 percent IGST on their services starting from October 1st.
OIDAR services are those delivered over the internet, primarily automated, with minimal human intervention. These services include online advertising, cloud services, e-books, streaming of media content, digital content sales, data storage, online gaming, etc.
Ayush Mehrotra, Partner at Khaitan & Co., stated that the present tax levied under the 2023 Finance Act aims to bring uniformity in taxation for OIDAR services. Previously, supplies made to unregistered persons in India were exempt if provided for non-commercial purposes, Mehrotra added.
However, with the change in the definition of 'non-taxable online recipient' under the Integrated Goods and Services Tax Act, 2017 ("IGST Act") introduced during the budgetary amendments in the Finance Act, 2023, and this notification, transactions that were previously exempt for non-commercial reasons will now be subject to IGST, he said.
He also mentioned that since taxability lies with the service providers located in non-taxable territories, offshore suppliers (such as Facebook, Google, X, Apple, etc.) will have to register under the Simplified Registration Scheme and pay taxes in India. Consequently, this will increase the cost of services for the recipient as it is likely to be passed on by the service providers.
Ranjeet Mahatani, Partner at Dhruva Advisors, highlighted concerns under the new notification, including the industry's need to determine whether the supply falls under the amended definition of OIDAR services. Next, the issue is to determine who is liable to pay the applicable GST and what information and documents the service provider must collect from the recipient of the services.
Swatantra Bhatia, Partner at Mazars, believes it is crucial for the Indian government to provide clear and comprehensive guidelines to help businesses understand their tax obligations under the new regulations, especially for foreign service providers.
Bhatia also reiterated the importance of simplifying tax compliance procedures, particularly for smaller companies, to reduce the administrative burden. Additionally, offering transitional provisions can help ease the adaptation to the new tax regime.
According to Bhatia, it is essential to continue monitoring the impact of taxation on different sectors and make further adjustments as necessary to maintain a balance between revenue collection and business sustainability. By taking these steps, we can create a fair and effective tax system that supports the growth of businesses in India while also meeting the country's fiscal needs, he added.
In the past, there was a proposal to introduce these amendments, but it was met with retrospective objections by industry associations. After the recent notification, the industry has not voiced any objections to the tax notification.
