Let’s start with the last first.
The ugly: Did you know that the Indian Government is charging digital businesses a fee for collecting tax on their behalf. This fee is over 1% and comes off the digital business’ bottom line. It is not borne by the Indian consumer who pays the service tax.
This fee is charged by way of a margined FX rate. This rate must be used by a foreign business when converting the tax that the business has collected in foreign currency from Indian consumers.
International suppliers of digital services have just two weeks to prepare for new place of consumption tax rules just introduced in India.
On November 9 India’s Central Board of Excise and Customs (CBEC) released an official circular identifying and explaining the rule change. The new rules come into effect on Thursday, December 1, and specifically target the cross-border supply of Business-to-Consumer (B2C) digital services to India-based consumers. The technical tax development here is the withdrawal of the exemption on these B2C cross-border sales.
India – one of the world’s fastest-growing large economies – is finally about to introduce a new taxation system, including a plan to tax the country’s digital economy.
As reflected in recent international approaches, the trend of enacting destination-based indirect tax legislation is to the fore. Ever since the release of the Organisation for Economic Co-operation and Development (OECD) Base Erosion and Profit Shifting (BEPS) report in October 2015 tax jurisdictions across the globe have taken stock of their existing tax collection systems and reassessing options.