Tax issue behind Google, FB’s protest: PhonePe
This is what PhonePe said in a blog post on Sep 11
Flipkart-owned digital payments platform PhonePe has attacked global internet firms for protesting against the Reserve Bank of India’s mandate to localise all payments data, saying they are doing so to avoid paying taxes in the country. ALNOOR PEERMOHAMED & SAMREEN AHMAD write
Flipkart-owned digital payments platform PhonePe has attacked global Internet companies for protesting against the Reserve Bank of India’s (RBI) mandate to localise all payments data, saying that they are doing so to avoid paying taxes in the country.
In a blog posted on September 11, PhonePe used Google and WhatsApp as examples, arguing that the RBI mandate would no longer allow them to report revenues generated from their apps in India as overseas revenues, forcing them to pay taxes here. Both Google and WhatsApp have built digital payment service specifically for India on the Unified Payments Interface (UPI) platform, which competes directly with PhonePe’s offering.
While Google Pay (formerly known as Tez) is already live, WhatsApp has not been given the go-ahead by the RBI for a full-scale rollout even after rolling out a beta version of their payment service.
PhonePe said the reluctance of Internet companies to comply with RBI’s data localisation norms had nothing to do with customer experience, data centre capacity, and increased costs or migration of data from servers abroad to the ones located within the geographic bounds of India.
Instead, the company is of the opinion that the root cause of the issue has been that data localisation would kill most “tax evasion arguments” that are used by global Internet firms today. “Think about it… If WhatsApp Pay & Google Pay (Tez) are forced to process digital payments transactions only in India, then FB and Google cannot claim that the revenues generated from these apps fall under foreign jurisdiction, just because their data servers are abroad. Indian tax jurisdiction gets very clearly established now,” said the company.
Further, PhonePe added that Google and Facebook’s inability to share their Indian users’ financial data with their affiliate services AdWords and Facebook Ads, respectively, which are based outside the country, would result in them not being able to target Indian users efficiently.
Both Google and Facebook generate majority of their global revenues through digital advertising. In the quarter ended June, Google reported a $32.7 billion revenues, 85 per cent of which was driven by ads. For Facebook, advertising drove over 98 per cent of revenues in the second quarter.
PhonePe’s parent company Flipkart, recently received a $16 billion investment from US retail giant Walmart in exchange for 77 per cent equity stake in the company. At the time of the investment, sources had indicated that Google could also buy into Flipkart with an investment of $2 billion. However, the deal never went through.
PhonePe, which is also owned by foreign investors, said that it saw no contradiction to RBI’s data localisation policy. A majority of the money that has been pumped into India’s start-up ecosystem, has come from foreign investors or Indian venture capitalists who have raised the money from foreign limited partners.
“We see no policy contradiction in terms of India having a liberal FDI policy, and having a strong data localisation policy. Both policies can and should co-exist. FDI helps grow the market faster and allows foreign investors to participate in this growth, while data localisation aims to protect the interests of our consumers,” PhonePe said.