Data localization: A new way to tax foreign internet companies

The government’s push for data localization is intended to not only safeguard the critical data of Indian citizens but also to ensure the taxes are paid by these digital firms. The digital payment firms collect a host of data including advertisements-related information sold to local clients.

By requiring these companies to store data locally, the government will be able to track the specifics of revenue generated by these firms in India. Indian government’s largest concern is regarding the foreign entities that provide services in India from overseas. The services from outside India’s tax jurisdiction cannot be traced.

For example, Facebook can offer all its services in India without having any presence. Although these companies have subsidiaries in India, those do very little business. When Indian users are singing up for these internet platforms, the contract is not with their India office. Location of data storage helps in regulated taxation and revenues.

India is losing out on revenues from digital firms operating overseas. In June 2016, the Indian government introduced 6% Google tax in form of an equalization levy on the amount paid to internet companies by Indian advertisers. Despite the initial resistance, the government has generated over Rs 1000 crore by March 2018.

The levy is not applicable on annual or monthly subscriptions of streaming websites and not even applicable on paid promotion through platforms like Facebook, that means the government is still losing out on lot of revenue.

Google India remitted $2 billion from revenue earned in India over last five years to the subsidiaries in Singapore and Ireland. Facebook had posted net profit worth Rs 40.7 core from revenue of Rs 347.8 crore for the fiscal year 2017. The data localization efforts will help Indian government in in assessing the tax liability of these internet firms.