OIDAR SERVICES

Source: FinancialExpress

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Context

The Online Information Database Access or Retrieval (OIDAR) services sector has emerged as an untapped source of significant revenue potential, according to a report by the Directorate General of GST Intelligence (DGGI). The report also underlines the complexities in ensuring tax compliance for offshore entities providing OIDAR services to Indian consumers, and the challenges posed by the unique nature of the sector.

About DGGI

The Directorate General of Goods and Service Tax Intelligence is a law enforcement agency under the Ministry of Finance responsible for fighting tax evasion in India. It was founded in 1979 as the Directorate General of Anti-Evasion and was later renamed the Directorate General of Central Excise Intelligence. 

About OIDAR

 OIDAR services refer to a category of services provided through the internet or an electronic network, delivered online without physical interaction between the supplier and the recipient. The Integrated Goods and Services Tax (IGST) Act defines OIDAR as services mediated by information technology, automated in nature, and dependent on technology for their delivery.

Examples

• Downloading e-books, music, or movies online
• Accessing cloud services
• Internet advertising
• Provision of e-books, software, and other intangible items via the internet
• Data storage and retrieval
• Online gaming

Taxation of OIDAR Services Under GST

For any supply of services to be taxable under the GST system, the place of supply must be in India. This principle governs both domestic and international transactions.

 Domestic Transactions: If both the supplier and the recipient of OIDAR services are in India, the place of supply will be the recipient’s location, and the transaction will be taxed according to the standard place of supply rules.

 International Transactions: If the supplier is outside India and the recipient is in India, the place of supply is still considered to be India, making the transaction taxable under GST. In such cases, two scenarios arise:

• Registered Recipients (Business Entities): When the recipient is a registered business entity in India, the reverse charge mechanism applies. Under this system, the recipient is responsible for paying GST and complying with tax formalities.
• Individual Consumers: If the recipient is an individual consumer (non-taxable person), the supplier of the OIDAR services located outside India is liable for paying GST on the transaction. The supplier must register and comply with Indian GST regulations.

Growth in Revenue from OIDAR Services

Since the introduction of GST in 2017, the OIDAR sector has seen a marked increase in revenue collection. In FY18, the revenue generated from OIDAR services was Rs 80 crore. This surged to Rs 2,675 crore in FY24.

Challenges in OIDAR Tax Compliance

Offshore suppliers often provide OIDAR services to non-taxable online recipients in India, such as individuals or small businesses. Under India's Goods and Services Tax (GST) regime, these suppliers are liable to register for GST and pay the applicable tax, even if they do not have a physical presence in India. The complexity arises in enforcing compliance, particularly for entities unfamiliar with Indian tax laws.

Way Forward

To address the challenges, the DGGI proposes innovative enforcement solutions, such as:

• KODEX Platform: Registering offshore suppliers with the platform to track data and transactions.
• Coordination with RBI: Gathering forex transaction data to monitor payments for services from offshore entities.
• Reciprocal Information-Sharing Agreements: Collaborating with foreign governments to ensure that offshore suppliers are aware of their tax obligations in India.
• Blocking Non-Compliant Websites: As a last resort, the Indian government may block websites that consistently avoid tax compliance.

Sources:

FinancialExpress

PRACTICE QUESTION Q:Online Information and Database Access or Retrieval (OIDAR) services have emerged as a significant source of tax revenue in the digital economy. However, they also pose challenges for tax enforcement. Discuss. (250 Words)