According to sources familiar with the situation, Netflix will not pass on India’s equalization charge to customers this year, and its user rate plans are expected to remain unaltered. Last year, the firm did not pass the charge on to customers. It was reported in the media that Google is planning to pass on the 2% equalization charge to all of its clients, even if they aren’t located in India, which is likely to pose problems for other internet firms.
Since the tax department is expected to urge them to do the same and Netflix never made any official statement regarding the same. According to tax experts, whether or not a firm passes on the equalization fee depends on a variety of variables. For the time being, this may not have any immediate repercussions. “Whether or not a firm passes on the equalization charge to its customers is determined by aspects such as the company’s strategy, pricing elasticity, and market maturity,” said Ajay Rotti, partner at Dhruva Advisors.
According to industry watchers, businesses who pass the equalization fee on to their customers may face tax problems. This is because tax is levied on the entire revenue.For example, if a firm charges Rs 1 lakh for service and adds 2% tax, the total cost to the consumer is Rs 1.02 lakh. The authorities can now inquire as to whether this company’s consideration or sales are worth Rs 1 lakh or Rs 1.02 lakh. Also, whether the equalization levy should be applied to the first Rs 1 lakh or the second Rs 1.02 lakh.
The government expanded the scope of the 6% equalization fee, which was originally implemented in 2016, to encompass more transactions. The new tax is imposed at a rate of 2%. According to tax experts, the new equalization levy’s definition of 2% is excessively wide and encompasses nearly every online transaction in some way. “The new charge will apply to any deal between two non-Indian businesses if any Indian consumer is targeted as a result of such a contract,” said Rahul Garg, managing partner of Aspire Consulting LLP.
Even though the buyer and seller are not domiciled in India, the taxman wants digital companies to pay a 2% tax if their content or advertising is seen here. The new laws define an online sale of goods or services as any purchase made online, any payment made online, or even an accepted online offer.