Expanding OIDAR scope: Foreign firms asked to comply with GST norms

Intimation notices to 70 online gaming, edtech, ad companies

The goods and services tax (GST) authorities have issued intimation notices to approximately 70 foreign firms, which include subscription-based service providers, educational technology, online gaming, and advertising companies, to ensure compliance with the new tax norms.

Effective from October 1, the new regulations now make all digital firms, including heavyweights like Netflix, Google, Facebook, and Spotify, liable for an integrated GST (IGST) of 18 per cent. This applies irrespective of whether the services provided are for personal or business use.

With the new norms in place, the government anticipates collecting around Rs 2,000 crore in the current financial year (2023-24), a significant increase from the approximately Rs 700 crore collected in the last financial year (2022-23) from foreign firms offering a raft of digital services in India, said a government official in the know.

Previously, only business-to-business services were subject to IGST, and individuals and government entities were not required to pay tax on services acquired for non-business purposes from overseas Online Information Database Access and Retrieval (OIDAR) service providers located outside of Indian jurisdiction.

“We are monitoring firms that have been avoiding GST. Larger players in the subscription model have largely complied, with some exceptions in certain revenue streams. However, many mid- to small-sized players have yet to register for tax purposes. It is crucial to remit taxes and file returns under the OIDAR provisions,” explained an official.

According to this official, online gaming and advertising firms, including smaller subscription-based players, have been among the major defaulters. These new norms aim to ensure compliance when overseas entities provide services to the Indian user base.

Any overseas supplier offering services to Indian consumers will now have to follow a simplified registration process under the GST law, either directly or through representatives in India, and ensure tax compliance. This includes paying IGST of 18 per cent on a forward charge basis, with the responsibility for collecting tax from the recipient and remitting it to the government resting on the service provider.

In Union Budget 2023, the central government expanded the scope of OIDAR services, eliminating previous exemptions and removing the term ‘minimal human intervention’.

Additionally, Section 16 of the IGST Act expanded the definition of ‘non-taxable online recipient’ to include non-registered recipients, thereby shifting the burden of tax collection to the service providers.

Tax officials believe that these new norms will also ensure that multiple revenue streams from services that were previously not covered will now be subject to compliance.

OIDAR enlists certain illustrative services such as advertising, Cloud services, e-books, movies, music, software, data and information retrieval services, data storage, and online gaming services delivered through online and internet platforms.

Experts note that foreign OIDAR service providers, such as over-the-top platforms and social media companies, generate substantial revenue from their Indian customer base.

Notably, online education services, gaming, and advertising, which were previously considered outside the scope of OIDAR services, now fall under the amended definition.

OIDAR service providers must analyse the impact of these changes carefully.

While livestreaming of events and classes might continue to be exempt, providing access to libraries or recorded videos will be subject to GST.

CASTING TAX NET WIDE

·         OIDAR services now subject to 18% IGST, even if supplied to individuals or government entities

·         As of October 1, the new regulations require compliance for services offered for both business and                  personal use

·         Previously, only business-to-business services were subject to IGST

·         Taxmen monitoring overseas players who have been evading GST regulations

·         OIDAR services encompass subscription services, gaming, advertising, Cloud services, e-books,                    movies, music, software, retrieval services, data storage, and rendering through online and internet                mediums