Need to have right tax on digital content: Experts
Considering the fast-paced digital content consumption in India, the demand for taxing it right has been growing. Due to the ambiguity over the tax structure on digital content, both the Centre and state governments are losing out a revenue opportunity, find experts.
Consumption of digital content through over-the-top (OTT) platforms like Netflix, Amazon Prime, Zee5 and Voot, short-form video platforms like Tik Tok and Helo and social media platforms like Facebook, Instagram and Twitter has been growing exponentially in India at a compounded annual growth rate of over 50 per cent. The country already has 500 million internet users and their numbers expected to touch 650 million by 2023. On average, an Indian spends 6.2 hours consuming online content daily. Spending per month on digital media content is expected to grow by 2.5 times, making it a multi-billion dollar market.
However, the country does not have a clear tax structure for this digital content market. "Considering the time Indians spent on consumption of digital media and the growth of this market, India has to formulate a clear tax structure. Taxes on digital content can be a good source of revenue for the government, especially during the current crisis," said Lionel Charles, founder and CEO of Indiafilings.com, an income tax filing intermediary.
According to Manjula Muthukrishnan, managing director, Avalara Technologies, an indirect tax filer, digital content platforms should be rightly taxed. "We need to have an umbrella to include all digital content service providers. We also need to have clarity on how to classify content, amount of usage and the revenue generated by this consumption," she said.
Currently, OTT platforms are being taxed under GST. Advertisement on social media too is taxed, but content is not taxed. The 2 per cent equalisation levy, or what is termed the digital tax, imposed from this fiscal is meant to charge the advertising revenue generated by overseas companies. But the ambiguity on how the entire gamut of digital content can be brought under the tax net and how the taxes should be devolved between the Centre and states remains.
According to Deloitte, service provided by any person in relation to development and supply of content for use in telecommunication service, advertising agency service, online information service, broadcasting service, etc, is liable to service tax. However, the applicability of indirect tax on delivery of content online has been a subject matter of litigation. The question of transfer of right to use comes into picture, leading to the continuing dispute of dual taxation and unwarranted litigation.
Export benefits are not available on providing access or enabling download of any data/information, if the user is abroad. While a few states have provisions for taxing digital content, in other states there continues to be ambiguity on applicability of entertainment tax.