Google, Facebook, Twitter may be affected, the government is finalizing framework to tax multinational tech companies.
The government is looking to set a revenue threshold of Rs 20 crore and a limit of 500,000 users above which companies such as Google, Facebook and Twitter will have to pay direct taxes on profits earned locally,as per ET reports.
These limits are part of the ‘Significant Economic Presence’ (SEP) concept that was introduced in the budget last year.
ET has learnt that the government is also considering if the SEP could be made a part of the draft Direct Taxes Code. The draft is expected to be submitted to the finance ministry soon.
Tech MNCs have been accused of paying very little taxes locally regardless of earning significant revenue and profits from offering services such as online advertising to customers in India.
It also comes at a time when lawmakers globally, especially in the European Union, are looking at other ways to tax Big Tech giants on profits and revenue generated locally.
Global corporations with more than 1 million registered users in India, or those with over 100 paying customers, or ones earning revenue of over Rs 10 crore from customers in India should invoice locally, community feedback platform LocalCircles said in a letter to revenue secretary Ajay Bhushan Pandey, as per ET reports.
The Central Board of Direct Taxes (CBDT) had in a notification in July 2018 asked for suggestions to frame rules related to SEP, but the government has not yet finalised it.
A sense of urgency has crept in after finance minister Nirmala Sitharaman urged G20 members last month to fix the issue of taxation of profits made by digital companies.
While India is backing the concept of SEP, the EU has indicated that it could levy a tax of 3% on digital revenues generated in the source country. France has also announced its own rules to tax digital companies.
SEP will end up taxing overseas digital companies on par with local firms, at around 35%, the current peak corporate tax rate. “This will not only boost the exchequer at a time when revenue collection is falling, but also create a level playing field between local and global companies,” an expert aware of the matter said.
In October 2017, the Income Tax Appellate Tribunal in Bengaluru adjudged in favour of the tax department, but Google got an interim stay from the Karnataka High Court.
The case is still under way. Companies like Google and Facebook have started billing users locally, but they do not report the entire transaction value as part of their India revenue.
They only report a part of the transaction as commission, while the rest of the money is remitted to overseas entities as cost. India introduced an equalisation levy of 6% on such payments.
By: Abhinav Ranjan, Editorial Desk, DKODING Media