VAT, GST, consumption tax, sales tax, use tax – no matter what term, or name, is used it is clear that the taxation of the digital economy is growing in popularity.
Here we outline the tax jurisdictions where such destination-based indirect tax rules are in place.
European Union Value-Added Tax (VAT) rate: 28 EU Member State VAT rates - taxation depends on location of the consumer In January 2015 new rules on the taxation of cross-border supplies of digital services to EU-based consumers came into force.
When the Lok Sabha (India’s lower house of parliament) finally passed the Goods and Services Tax (GST) Bill in late March this year the country’s Prime Minister Narendra Modi congratulated all with the declaration: ‘New year, new law, new India’.
For international sellers of digital services, however, the new law brings new burdens. One of the major revelations in India’s GST bill is that there is no sales threshold to registration for foreign digital service providers.
The devil is always in the detail: this is particularly true regarding the July 1 introduction of the new Indian Goods and Services Tax (GST) system.
We now know that there is NO sales threshold below which foreign suppliers of digital services to Indian consumers would not need to register. This means that every non-Indian seller of digital services who makes a single sale to an Indian consumer needs to register for GST in India.
Digital disruption has laid waste to numerous traditional industries, from the ramifications of internet publishing on the print media to the effects of the Uber and AirBnB models on the car travel and lodging sectors.
An increasingly connected (and smartphone-obsessed) population expects this disruption. Today, consumption is all about the now economy. It is now easier than ever, thanks to infrastructural advances in broadband and WiFi, for consumers to access digital content from anywhere in the world.
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.