GST investigation arm DGGI has suggested reciprocal arrangements with foreign governments for information sharing and enforcement measures as well as blocking of websites to prevent tax evasion in OIDAR services like e-gaming, online education and advertisement.
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The move has been necessitated as it has come to DGGI’s notice that there are entities, including online casinos that are based out of tax havens and also those which operate through offshore VPNs and cloud-based platforms. These entities are non-cooperative and appear to intentionally avoid tax compliance, and hence an information exchange with global law enforcement agencies would help crack down on any evasion.
Online Information and Database Access or Retrieval (OIDAR) services are those which are delivered over the internet or electronic network and whose supply is essentially impossible without Information Technology.
It includes a wide array of services viz cloud services, digital content, online gaming, online advertising etc. When such services are provided by an offshore entity to a non-taxable recipient, the supplier becomes liable for obtaining registration and discharging GST on the same.
Currently, as many as 574 offshore entities providing OIDAR Services have registered themselves with the GST department, and annual revenue from this sector has increased from Rs 80 crore for the FY 2017-18 to Rs 2,675 crore for 2023-24 fiscal.
The Directorate General of GST Intelligence (DGGI) in its annual report noted that since the OIDAR service providers are located abroad it becomes a challenge in GST enforcement and hence the sector remains relatively untapped and holds tremendous revenue potential.
On dealing with such offshore suppliers, it has also dawned that several such suppliers are ignorant of the law, and upon conveying the legal position clearly, such suppliers agree to comply with the GST mandate, it said.
These include the likes of Udemy Inc (USA), Canva Pty (Australia), OVH group (France), Blackboard (Netherlands) etc who registered themselves following efforts of DGGI and discharged significant tax liability.
“However, there are other entities that are non-cooperative and appear to intentionally avoid tax compliance. These include various online casinos based out of tax-havens like Malta, Cypress, Curacao, BVI etc. There are also other entities that are difficult to reach out to on account of them operating through VPN or cloud-based platforms,” the DGGI said.
The GST intelligence wing said that unique challenges in tax enforcement in this sector necessitate out-of-the-box interventions to plug revenue leakage.
The DGGI suggested steps like registering with the KODEX platform to receive the data/information in respect of offshore suppliers, as well as coordination with the Reserve Bank of India to obtain relevant data pertaining to forex transactions for purpose code falling under Group 8 (i.e. Computer and Information Services) of RBI’s Purpose Codes for Reporting Forex Transactions to deal with evasion in the sector.
“…entering into reciprocal arrangements with foreign governments for information sharing and tax enforcement for OIDAR services and enabling blocking of websites of non-compliant service providers are some of the suggested interventions,” the report titled ‘Trends in GST evasion 2023-24’ said.
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