Netflix's tariffs likely to stay same; won't pass on equalisation levy to customers this year

Netflix will not pass on India's equalisation levy to consumers this year and its tariff plans for users are likely to remain unchanged, people familiar with the matter said. The company had not passed on the levy to consumers last year as well.

ET had reported in its edition dated August 5 that Google's stance of passing on the 2% equalisation levy to all its clients, even if they aren't based in India, is set to cause trouble for other tech companies as the tax department is likely to ask the other big tech companies to follow suit.

Netflix did not respond to an email seeking comments.

Tax experts say that whether a company passes on equalisation levy or not is a choice they could make based on various factors. This may not have any direct implications for now.

"Whether a company passes on equalisation levy to its consumers or not will depend on factors such as their strategy and price elasticity or maturity of the market," said Ajay Rotti, partner, Dhruva Advisors.

Industry trackers say that companies that are passing on the equalisation levy to customers could, in fact, land in tax complications. This is mainly because tax is paid on total revenue.

For instance, if a company charges Rs 1 lakh for a service and pays 2% tax on that, it means the total cost to the customer would become Rs 1.02 lakh.

The authorities can now question whether the consideration or sales for this company is Rs 1 lakh or Rs 1.02 lakh. And whether equalisation levy should apply on Rs 1 lakh or on Rs 1.02 lakh.

The government broadened the scope of equalisation levy at 6% first introduced in 2016 to include additional transactions. The new tax is applicable at 2%.

The definition of the new equalisation levy at 2% is too broad and in some way covers almost every online transaction, say tax experts.

"The new levy would cover any contract between two non-Indian entities as well if any Indian customer is targeted by virtue of such contract and specifically the cases where advertisements are accessed by a targeted customer through an internet protocol address located in India," said Rahul Garg, managing partner, Asire Consulting LLP.

The taxman wants tech giants to pay 2% tax even when buyer and seller are not based in India but their content, advertising is visible here. The new regulations define online sale of goods or services as any purchase that has been made online, online payment or even an offer that has been accepted online.