The Indian government is set to enforce a critical change to its Goods and Services Tax (GST) regime starting October 1st and it’s going to affect international companies that provide digital online services to those in the country, bringing them within the net of an 18% GST that’s most likely going to make everything from streaming TV shows to music to even cloud services that much more expensive. Why and how exactly is all of this happening and what should you know whether you’re an international service provider or simply a domestic consumer who likes to stream music when you work out? Let’s dive in.
The ‘OIDAR’ Exemption
In Indian tax terms, certain services from abroad that are automated and require ‘minimal human intervention’ are classified as ‘Online Information and Database and Retrieval Services’, or ‘OIDAR’. Companies providing advertising services like Google, streaming services like Spotify and Netflix – a big portion of the services provided to a massive consumer base in India are classified as OIDAR services, and since a big portion of these services aren’t to businesses but rather to unregistered users who don’t really have a GST registration or pay GST, they and us were classified essentially as ‘non-taxable online recipients’. The service providers didn’t have to pay GST and we didn’t have to indirectly face the burden of that supply-side cost. Let’s also remember that these OIDAR services are mostly automated – when you play a song on your phone through Spotify or YouTube Music, you’re essentially just retrieving song data from the cloud and therefore ‘streaming’ it bit by bit to your device.
The Indian Government Wants More
This is now set to change – the Indian Central Board of Indirect Taxes and Customs (CBIC) a few months ago after the GST Council meeting notified changes to the Finance Act of 2023 which in effect brought OIDAR services to otherwise ‘non-taxable online recipients’ within the purview of 18% GST – the supplier of services from October 1st now needs to collect these additional taxes from consumers and individuals who don’t really use these services for commerce and business. It’s this personal use of OIDAR services that will now attract 18% GST and it’s most certainly going to affect a large section of the population who utilise online services, ironically, even you consuming this data online, not to mention small businesses that now need to comply with this additional tax compliance when providing services to end-users.
What About Live-Streaming?
The COVID-19 pandemic coupled with widespread access to data services by the world’s most populous country led to a lot of classes and events being streamed on various platforms, and some are of the opinion that these functions won’t come within the 18% GST levy since there’s really no online storage or retrieval, but this argument will most certainly need more clarity since OIDAR services to unregistered users not using them for business or commerce purposes functioned as an exemption, an exemption which is now being removed. Nevertheless, it’s a position that some in the market share, who say that live-streaming without retrieval of stored data won’t be GST chargeable. We’re most certainly going to have to wait and watch to understand the practical impact this will have, though with the GST authorities these days suddenly levying retrospective taxes while arguing that ‘the services were always taxable’, the taxation regime in India is less than predictable to say the least.
What do you think? The Indian government believes that the OIDAR services exemption was being misused but the fact of the matter is that online services are going to get a lot more expensive – just think about all the online services you consume in a given day, even if it is a monthly ‘premium subscription’ fee or the like – 18% isn’t a joke, especially when channels like Bridge Legal and [sic] use online platforms to provide you with educational content.
Let us know what you think in the comments section below and as always, stay smart!