Many providers of Online Information and Database Access or Retrieval (OIDAR) services, particularly those based abroad and unregistered with Indian tax authorities, represent a “relatively untapped” sector with “tremendous” revenue potential, according to a report by the Directorate General of GST Intelligence (DGGI).
The report highlights the unique challenges in enforcing tax compliance within this sector, which require innovative solutions to prevent revenue leakage. Among the proposed measures are registering with the KODEX platform to track data and information related to offshore suppliers, coordinating with the Reserve Bank of India (RBI) to gather forex transaction data, establishing reciprocal information-sharing agreements with foreign governments, and enabling the blocking of non-compliant websites.
In its FY24 annual report, the DGGI emphasised that OIDAR services—often provided by foreign entities—are liable to discharge tax to the Indian government for such supplies creates challenges in GST enforcement that are unique to this sector. OIDAR services, delivered over the internet or electronic networks, are highly dependent on information technology and include offerings such as cloud services, digital content, online gaming, and online advertising.
The complexity arises when offshore entities supply OIDAR services to non-taxable online recipients based in taxable territory. In such cases, the offshore suppliers are liable to register for GST and discharge tax obligations in India, DGGI stated. Since the introduction of GST in July 2017, a total of 574 offshore entities have registered with the GST department. Revenue collection from this sector has seen a significant rise, increasing from Rs 80 crore in FY18 to Rs 2,675 crore in FY24. “On dealing with such offshore suppliers, it has also dawned that several such suppliers are ignorant of the law, and upon conveying the legal position clearly, such suppliers agree to comply with the GST mandate,” the DGGI said.
Notable foreign companies that have since registered and settled substantial tax liabilities include Udemy (USA), Canva (Australia), OVH Group (France), and Blackboard (Netherlands). However, the DGGI pointed out that some entities remain non-cooperative, appearing to deliberately avoid tax compliance, the DGGI said.
