Netflix won’t pass on impact of 2% equalisation levy to India users

Netflix will not pass on the impact of India's equalization levy to its consumers this year and the platform’s tariff plans for its local users are likely to remain unchanged, people familiar with the matter told ET. Last year’s subscription plans also excluded the levy.

Netflix did not respond to ET’s email seeking comments.

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


“Whether a company passes on the equalisation levy to its consumers 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, a company charges Rs 1 lakh for a service and pays 2% tax on that. Which means the total cost to the customer would become Rs 1 lakh and two thousand.

The authorities can now question whether the consideration or sales for this company is Rs 1 lakh or Rs 1.02 lakh. This would also raise the question whether equalisation levy would apply on Rs 1 lakh or on Rs 1.02 lakh.

What is equalisation levy?
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 the buyer and seller are not based in India but their content and advertising are 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.