e-commerce
The Indian Parliament [Credit: NP Ramkumar]

Indian e-commerce tax set to affect online platforms

India: An amended finance bill, passed in parliament on Monday, may increase prices for Indian users of major e-commerce platforms.

The bill, which comes into effect on 1 April, adds a two per cent equalisation levy on any foreign companies making digital sales.

Notable firms which will be hit include Netflix, Booking.com and Airbnb. The proposed measure will include any overseas e-commerce transactions which originate in India.

Any company which offers software as a service [SaaS] features will be affected by the levy, known as the Google Tax. The measure was designed to pull revenue from tech giants back into the Indian economy.

Ankhur Pahwa, Indian e-commerce leader for EY, told The Economic Times: “This leads to the cost of products going up, along with the cost of compliance for e-commerce companies. This automatically means that some of that cost will get passed through to users.”

The prior measure, which was introduced in 2016, focused on digital advertising and similar services. The language of this bill has now been appropriated to cover a far wider array of services.

The government has been pushing for a larger digital tax measure since then, with various plans coming forward as a result. India has been aiming to take on a leadership role going forward in the international shift to a digital tax regime.

Pahwa noted that the requirement for companies to set up compliance departments in India will be the largest shift in costs. Any company which offers subscription-based business model will be affected by this new measure.

Airbnb in June planned to double its investment in the Indian market, with Booking.com noting that the market for alternative accommodation was increasing in the country.

Mokshat Bhat, partner at AP & Partners, said: “If this creates a compliance or tax burden on foreign e-commerce operators, they may take a call on restricting access to Indian users.” Some speculate this may move even further, to companies offering travel or hotel bookings online.

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