14 Nov 2016 15:05 IST

Books, music downloads from foreign sites will be costlier from Dec 1

Centre to impose 15% service tax on B2C services by overseas web service players

You may have to pay more for your music or e-book downloads from overseas sites with effect from December 1.

This is because the Central Board of Excise and Customs (CBEC) has withdrawn an existing service tax exemption on overseas companies providing services such as advertisements, web subscriptions, cloud hosting, e-books and gaming to individuals, government and government bodies in India.

From an industry perspective, the latest revenue department move (of imposing 15 per cent service tax on almost all B2C OIDAR downloads) will level the playing field between domestic and overseas suppliers.

Level playing field

Already, music and e-book downloads from domestic service providers attract service tax.

The CBEC has, on November 9, through four separate notifications (on the same matter), brought changes to the ‘Place of Provision of Services Rules’ in respect of ‘online information and database access or retrieval services’ (OIDAR).

Prior to this change, only cross-border business-to-business (B2B) transactions were subject to service tax, where the recipient was located in India.

The obligation to comply with taxation was on the service recipient.

Now, in the case of cross-border B2C OIDAR — which has now been brought under service tax — the service tax compliance will have to be done by the foreign service provider.

R Muralidharan, Senior Director, Indirect Taxes, Deloitte in India, said the service tax — being an indirect tax — on foreign service providers (for B2C OIDAR) is most likely to be passed on to domestic consumers.

One will have to see how this complex tax regime is enforced on cross-border B2C OIDAR services, he added.

Aseem Chawla, Managing Partner, ASC Legal, said: “With this amendment, B2C transactions will also fall within the ambit of service tax. The obligation to comply with taxation in a B2C situation is on the service provider based outside India, therefore the enforcement, levy and collection of such service tax would be a challenge.”

Enforcement is key

Sachin Menon, Partner and Head of Indirect Tax, KPMG in India, said enforcement would be a critical issue.

Explaining the latest change, Suresh Rohira, Partner, Indirect Tax, BDO India, said the definition of OIDAR services has been widened to include additional services such as advertising on the internet, providing cloud services, provision of e-books, movie, software, music and other intangibles via telecom network/internet, digital data storage and online supply of digital storage.

If the overseas service provider does not have a presence in India, it shall appoint a representative in India for obtaining registration and paying service tax in India, he said.

The impact would be on the cash flow as payment of service tax under reverse charge cannot be made through a CENVAT account, Rohira said, adding: “This is a step similar to the Model GST law, wherein non-resident taxable persons are required to obtain registration and deposit tax.”

(The article was first published in Business Line.)