Netflix income in India may be taxed by govt; Power consumption soars and more

News View talks about government's plans to tax Netflix income, outcome of Go First lessor challenging NCLT order and India's power demand shooting up this summer

Netflix income, Adani Group
Taxing Netflix income will be the first step to tax digital enterprises abroad that provide electronic commerce services to Indian consumers, said experts

Govt may impose tax on Netflix income in India

The government may tax Netflix Inc’s income from streaming services in India. According to the Economic Times, this will be the first step to tax digital enterprises abroad that provide electronic commerce services to Indian consumers.

What it implies: In 2016 too, India imposed a 6 per cent “Google tax” on digital advertisements, which was later expanded to cover e-commerce products or services for digital enterprises that did not pay taxes despite having a big user base. However, in the case of Facebook, those purchasing Meta ads for business or personal purposes, if the ‘Sold By’ entity on receipt of the Meta ad purchase is Facebook India and the ‘Sold To’ address is in India, GST and TDS are added to the cost of the Meta ad purchase at the applicable local tax rate, according to the Meta website.

Ridhima Mehta, a manager with one of the Big Four consulting firms, told The Federal that with an amendment carried out in the Finance Act 2023, the companies outside India that provided the services online to the unregistered person in India would now need to revisit their tax position as the implication of GST might arise on them.

It means the government can now tax companies like Netflix on their income from India under a forward charge mechanism. It is a mechanism under which the supplier of goods or services collects the tax from the recipient of goods or services and pays the tax to the government.

Further, a non-taxable online recipient was also amended vide Finance Act March 31, 2023, to mean “any unregistered person receiving online information and database access or retrieval services located in taxable territory”.

An “unregistered person” has been explained to include a person registered solely in terms of clause (vi) of section 24 of the Central Goods and Services Tax Act, 2017, which includes persons who are solely registered for the purpose of tax deduction at source (TDS) under Section 51 of the CGST Act, such as department or establishment of central government, state government, local authority, government agencies and other non-registered taxpayers.

Earlier, the same was defined as “any government, local authority, governmental authority, an individual or any other person not registered and receiving online information and database access or retrieval services in relation to any purpose other than commerce, industry or any other business or profession, located in taxable territory”.

The CBIC (the Central Board of Excise and Customs) specifically omitted the term “in relation to any purpose other than commerce, industry or any other business or profession, located in taxable territory. ” Therefore, any services provided by overseas suppliers through the digital medium for any purpose, including that for business and profession, will now be taxable in the hand of the OIDAR service provider if the same is provided to an unregistered person.

Mehta said the central government vide amendment had brought in Finance Act 2023, which broadens the taxability of OIDAR (Online Information Database Access & Retrieval (OIDAR) Services under GST.

To understand the amendment, we need to first analyse the definition before March 31, 2023, of OIDAR, which provides “services whose delivery is mediated by information technology over the internet or an electronic network and the nature of which renders their supply essentially automated and involving minimal human intervention and impossible to ensure in the absence of information technology and includes electronic services.”

Mehta said, pursuant to March 31, 2023, the definition was amended to omit the word “essentially automated and involving minimal human intervention, ” meaning that the OIDAR services will now include those that are not automated and will even include the services where there is the involvement of human intervention”.

Adani in talks for $2.25 billion stake sale in 3 group companies

Adani Group may raise up to $2.5 billion via the sale of shares in Adani Enterprises, Adani Transmission and Adani Green Energy instead of raising debt. This move comes months after the group scrapped the $2.5 billion Adani Enterprises follow-on public offer following the Hindenburg report.

What it implies: Since the publication of the Hindenburg report, which alleged year-long corporate fraud carried out by the Adani group, the group has been cleaning up its balance sheet, reducing debt and has even put on sale its equity stake in some of its companies. The latest move will enable the group to pay off debt and capital expenditure.

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Go First lessor SMBC challenges insolvency

Aircraft leasing company SMBC has challenged the NCLT order giving moratorium cover to Go First, preventing lessors from repossessing its aircraft.

What it implies: While it is a positive development for Go First, it will force lessors to increase leasing charges for domestic airlines in India. It will impact their earnings and hurt the passengers, and higher charges will be passed on to them. With the collapse of Kingfisher Airlines, lessors increased leasing charges. This impacted another airline, Air Costa, which had to shut operations, as it found it difficult to service steep leasing charges of its Embraer aircraft.

India’s power consumption is creeping closer to 200 GW once more

On May 10, India reached a peak power demand of 198.3 gigatonnes (GW), up from 196.2 GW the day before on May 9.

What it implies: Power demand is anticipated to rise even more this week. According to the India Meteorological Department (IMD), a heatwave is anticipated to return after several days of balmy weather in most parts of India.

According to the IMD, temperatures in Rajasthan, Uttar Pradesh, and central India might reach 45 degrees Celsius. Delhi’s temperatures and surrounding areas are expected to exceed 40 degrees Celsius. Unless the weather drastically changes, India’s peak electricity consumption will again exceed 200 GW in a day or two.

Data showed that between April 1 and May 10, daily peak demand exceeded 200 GW in nine days. With the increase in overall demand, trade volumes in the power exchanges have increased, with the exception of the high-price group. To avoid a repeat this season, the power ministry has mandated that all imported coal-based thermal plants run at full capacity.

Also read: Go First’s insolvency petition accepted; Adani-Hindenburg panel report goes to SC

Peak demand is expected to reach 230GW this summer, according to the ministry, and power minister RK Singh has stated that the country is prepared to handle the demand. According to data, the situation with coal stocks remains “manageable” for now. As of May 10, 28 of the country’s 165 domestic coal-fired thermal power facilities have critical stocks. At the same time last year, the number of such plants was around 96.

Thermal power plants store around 33 million tonnes (MT) of coal. Coal stock is at a critical level when power plants have fewer than 25 per cent of the normal 26 days of fuel on hand. According to a report released on May 8 by CRISIL Ratings, the coal supply situation has fared substantially better this year. “Overall coal despatch to end users increased 11.6 per cent year on year to 80.35 MT in April 2023,” said the report.

In the same time period, dispatches to power plants increased by 6.6 per cent to 65.41 MT. The report claimed that “the increase in domestic supply, combined with the mandate to blend 6 per cent of requirements with imported coal in the first half of fiscal 2024, has resulted in adequate buffers at thermal power plants this time.”

HNIs prefer FDs over debt mutual funds

With the debt mutual fund schemes now under the tax ambit, the product’s attractiveness has reduced as High Net worth Individuals (HNIs) favour bank fixed deposits (FDs) over such funds, according to a report by Motilal Oswal Financial Services on Thursday (May 11).

In addition, interest rates on bank deposits have increased significantly over the past year. This led to HNIs inclined towards bank fixed deposits over debt mutual funds, said Nitin Aggarwal, Head of BFSI Research at Motilal Oswal Institutional Equities, said.

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What it implies: Although HNIs comprehend the advantages of mutual funds over other financial products, past problems in the sector still concern them. The report is based on the inputs of large mutual fund distributors, having an asset under management (AUM) of over ₹1,000 crore, and institutional sales representatives. According to the report, HNIs have also preferred PMS (Portfolio Management Schemes) and AIFs (Alternative Investment Funds) as they find commoditised mutual fund products.

Regarding systematic investment plans (SIPs), HNI customers have failed to maintain higher ticket SIPs as the returns through the route over the past three years have been minimal. This led to the HNI segment experiencing lower renewal rates of SIPs.

HNIs prefer bank FDs over the mutual debt fund following the new taxation rules for the funds that kicked in on April 1. Under the new rule, investment in debt mutual funds bought on or after April 1, 2023, will be taxed as short-term capital gains at applicable tax rates. That is, capital gains from debt funds, international funds and gold exchange-traded funds (ETFs), irrespective of their holding period, will be taxed at an individual’s relevant applicable tax rate. Debt mutual funds held for over three years will no longer enjoy indexation benefits.

Additionally, existing LTCG (Long-Term Capital Gain) benefits will continue for investments made on or before March 31, 2023. Indexation considers the inflation during the holding period of a mutual fund unit and consequently increases the asset’s purchase price, reducing the tax.