The fact that these companies compete with the very people who have come to depend on it naturally creates a conflict of interest.
Khan contends that there are three elements that contribute to this. While she makes the argument specifically in the context of Amazon, it speaks for all platforms. First, their dominance as platforms necessitates independent merchants to use their site. Second, their vertical integration in selling as a retailer and acting as the marketplace for the same. Third, as an internet company, their ability to amass large swathes of data.
German antitrust watchdog, the Bundeskartellamt, just launched a probe into Amazon using its dual role as both a marketplace and retailer to effectively become a “gatekeeper for customers”.
Indian policies explicitly prevent this.
Although the sad part is that both Amazon and Flipkart rely on complicated corporate structures to bypass these. But I guess as long as we’re taking two steps forward, and one backwards, instead of one step forward, and two backwards.
The Google Tax
Foreign companies generally do not get taxed for every transaction that takes place in India due to the presence of Double Tax Avoidance Agreements. It’s only when these transactions cross a certain limit or threshold that taxes kick in.
Enter, the Google Tax, brought in through the Finance Bill in 2016. Every time a company has to pay advertising fees above Rs 1 lakh ($1,417) to a company that is based outside India, it has to withhold 6% of that payment. This amount then paid to the government is known as the equalisation levy.
“These thresholds were based on physical factors. For instance, the foreign company should have an office, agent in India or some kind of a physical presence. Now, with digital commerce, the issue is foreign companies do not require a presence in India and can conduct a lot of business earning significant amounts of revenues here. That is the reason why they brought the equalisation levy,” says Meyyappan Nagappan, a tax lawyer with Nishith Desai Associates.
There are, globally, at least three different versions of the Google Tax imposed in Australia, United Kingdom and India. All of them differ but are made with the singular aim to prevent tax avoidance by multinational companies, especially big tech companies like Google and Facebook.
These companies have, for the longest time, been able to avoid paying taxes in the countries from where they earn their revenues. They did this by creating incredibly convoluted corporate structures to set up entities in tax havens, channelling their revenues through them. Which was entirely legal, since most countries have what is called a Double Tax Avoidance Agreement.
Attempts to prevent tax avoidance are not limited to these three countries though. Countries across the world have started taking unilateral measures to tax digital businesses. The European Union is debating about introducing a 3% digital tax for money made through user data or digital advertising in a country. The Organisation for Economic Co-operation and Development also started a project known as the Base Shifting and Tax Erosion project in 2015. Additionally, the United Kingdom is in the process of moving toward a system similar to India.
Amidst reports that companies like Google, Facebook and Twitter have generated close to Rs 1,000 crore ($141 million) as revenue from local advertisers, there does seem to be some merit in taxing these companies like this.
But as with all taxes, solutions often need tweaking. The Google Tax works in a manner similar to indirect taxes, which means the charge can be passed on to Google’s customer.
Nailing down WhatsApp
Indians form WhatsApp’s largest userbase globally. And yet, till earlier this year, it neither had a corporate office in India nor a named official whom Indian users could contact if they had any complaints.
This is similar to many international tech companies who have a massive online presence in India but no local companies or officials empowered to take action when there’s a problem.
Yet, under pressure from the Indian government, WhatsApp recently appointed an India-specific “grievance officer” and also agreed to set up a corporate office in India. This is a one-off move where one company has ceded to the demands of a government.