Tax authorities crack down on foreign digital firms to enforce GST compliance

The government is reportedly intensifying efforts to bring foreign digital service providers under the ambit of the Goods and Services Tax (GST). According to a CNBCTV-18 report, this initiative aims to ensure that global digital companies contributing significantly to the Indian market also contribute their fair share to the national exchequer.

The government's focus is on foreign entities offering digital services, such as streaming platforms, online gaming, and cloud services to Indian consumers. These services fall under the category of Online Information and Database Access or Retrieval (OIDAR) services. Under the current GST framework, these services are subject to an 18% tax. However, compliance has been inconsistent, with many foreign providers not registering for GST or remitting the appropriate taxes.

The report stated that the Directorate General of GST Intelligence (DGGI) has initiated several enforcement measures to ensure foreign digital companies follow Indian tax regulations. These efforts involve urging large Indian businesses, who either utilize these platforms or contribute to their revenue, to provide relevant information and encourage the overseas firms to register under GST.

The DGGI has reportedly urged Indian payment gateways such as Pine Labs, Razorpay, and Cashfree to stop processing payments to foreign firms that haven't registered for GST. Additionally, the tax authorities have started collecting transaction data from banks and the Reserve Bank of India, and are considering data-sharing arrangements with foreign governments.

It is to be noted that the move may cover a wide range of sectors, including cryptocurrency exchanges, online universities, edtech companies, cloud software providers, content platforms, AI tools, design services, online advertising, digital content providers, and cloud storage solutions, claimed the report.

India’s push to bring foreign digital services under its GST framework aligns with global trends, as governments across Europe and other regions seek to tax tech companies that operate across borders but lack a physical presence. Interestingly, such measures have sparked opposition from countries like the United States. Washington has previously argued that these digital tax rules unfairly target American companies, raising the risk of international legal challenges and escalating trade disputes.