Policy Wrap: GST authorities to issue tax demand notices worth Rs 10,000 crore to online gaming enterprises, Data Protection Bill has set new guidelines for data transfer outside the country, and more
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GST authorities to issue tax demand notices worth Rs 10,000 crore to online gaming enterprises
The Goods and Services Tax (GST) authorities plan to issue 40 online gaming enterprises with new tax demand notices. This comes after the GST Council approved a flat 28% tax on internet gaming on Tuesday.
According to officials, the liability for the 40 online gaming organisations might total Rs 10,000 crore. The authorities had been waiting for the GST Council to provide clarification on how to tax online gaming enterprises.
According to the GST Council's resolution, all online gaming, regardless of whether it is based on skill or chance, will be subject to the highest GST rate. Schedule III of the central GST Act will need to be modified in order to include online games in the category of taxable actionable claims, along with lotteries, betting, and gambling.
The government's decision, announced late on Tuesday, was met with dismay in the $1.5 billion industry. Experts on the matter voiced fears that the new tax will render the legitimate online gaming industry unviable, effectively driving consumers towards offshore and illegal platforms that pay no taxes, and would harm the $2.5 billion in investments in the Indian online gaming startup ecosystem to put a complete stop to any upcoming FDI.
Some also stated that Companies will be forced to set up shop out of the country and might impact India’s digital economy and the online gaming industry negatively.
According to the Government, there would be no need for further consultation about India's decision to impose the 28% tax on revenues that online gaming companies collect from their customers, and an early review is doubtful.
The change is expected to lead to the industry's GST to grow by almost 1,000%.
Digital Personal Data Protection Bill has set new guidelines for data transfer outside the country
In a draft of the Digital Personal Data Protection Bill, 2023, the government has gone from whitelisting nations to blacklisting regions where it is not allowed to process the data of Indians. The list of blacklisted countries is however not disclosed. Depending on the type and volume of data processed by an organisation, it has also added extra responsibilities for "Significant Data Fiduciaries."
A data fiduciary may transfer personal data for processing to any nation or territory outside of India under the terms and conditions put forward by the central government, unless they restrict such transfers by notification after evaluating the factors that it may deem necessary.
Data fiduciaries are responsible for obtaining the data principal's unequivocal consent. The government has mandated in the draft that any consent sought "be accompanied or preceded by an itemised notice" in plain and clear language that explains why the data is being collected, how it will be processed, where it will be stored, and any potential effects the processing of the data may have on the data owner.
In another notable change under the new draft, the age limit for users who can consent under the proposed law may be set to as low as 14 years, provided that the organisation asking for consent to process children's data show that it uses the information in a "verifiably safe" manner. The revised clause would give the government more authority to only permit the processing of children's personal data in specific situations, such as in vital industries like healthcare, or in cases where the child is the ultimate beneficiary of a government programme. According to the government, such information will never be used to provide personalised adverts or other harmful content.
BIGTECHS & ANTITRUST
FTC’s appeal last hurdle before the $69 billion Microsoft-Activision deal
The $69 billion Microsoft-Activision merger was blocked by the Competition and Markets Authority (CMA) back in April. However, the CMA announced on Tuesday that if the transaction was reformed to allay its worries, it might reconsider. Merging parties can choose to restructure an agreement, which may trigger a fresh merger inquiry. The IT giant is now two steps closer to concluding its largest-ever merger, thanks to its courtroom triumph on Tuesday.
However, the Federal Trade Commission (FTC) of the United States announced on Wednesday that it would be appealing the decision to allow Microsoft to proceed with its acquisition plans.
Unless an extension is agreed upon, either firm is entitled to terminate the agreement after July 18. The likelihood that the merger between Microsoft and Activision won't be finalised by July 18 increases if there are any unresolved regulatory issues.
FTC's court filing about the appeal remains the last hurdle for the deal to go through.
EU regulation in Metaverse to facilitate a fair and inclusive ecosystem
The European Commission unveiled a strategy on Tuesday in an effort to seize the initiative in the metaverse, a network of online shared virtual worlds, and prevent Bigtechs from gaining control of an emerging sector that might spur economic growth.
The EU move comes as Meta Platforms, the owner of Facebook, Microsoft, and Apple are developing metaverse goods or services, raising concerns that these giants would gain an unfair advantage over smaller competitors.
The EU executive claimed that their plan intends to embody EU values and fundamental rights and establish an open and interoperable metaverse, where it anticipates that the global market size would surpass 800 billion euros by 2030, up from 27 billion last year.
The plan calls for bringing together creators, media corporations, and others to establish an industrial ecosystem, establishing regulatory sandboxes to assist businesses in testing the metaverse, and launching virtual and real skills development programmes.
All of this is being done to ensure that developments follow EU digital rights and values, to address privacy and disinformation issues, and to ensure that Web 4.0 develops into an accessible, trustworthy, fair, and inclusive digital environment for all.
Digital services tax freeze to extend through 2024
With the exception of Canada, nations that have digital services taxes (DSTs) have decided to postpone enforcing them for at least another year due to the delay in the global multinationals tax agreement that was supposed to replace them, according to the Organisation for Economic Cooperation and Development (OECD) last Wednesday.
A 2021 agreement that would revamp long-standing, widely seen as antiquated laws on how governments tax multinational corporations was scheduled to go into effect in more than 140 countries as early as 2024.
Over the past fifteen years, the digital economy has developed 2.5 times faster than the global GDP, profoundly altering how companies conduct business abroad, but international tax codes have not kept up with this increase. In order to standardise international taxes, the Organisation for Economic Co-Operation and Development (OECD) has been collaborating with governments, decision-makers, and individuals worldwide.
The two-pillar agreement's first component attempts to transfer taxing authority over around $200 billion in revenues from the largest and most profitable multinational corporations to the nations where their sales are made. For major international corporations that reach specific revenue and profitability standards, Pillar One creates new nexus and profit allocation rules. Additionally, regardless of a company's physical presence or market location, the Pillar increases nations' power to tax activity occurring within its borders.
Similarly, regardless of their location of headquarters or the countries in which they conduct business, Pillar Two sets measures to ensure that major multinational corporations pay a minimum of 15% in taxes.
What is DST?
Numerous countries have implemented unilateral steps to protect their tax bases and tax money obtained from certain digital activities carried out within their jurisdictions because the OECD has had trouble achieving a global consensus. Taxes on digital services (DSTs) are one such measure.
DSTs are a tax on gross revenue earned from a variety of digital services that are targeted at large U.S. multinational corporations.
Different nations have varying DST levies. In India, the 2% DST is applied to all income from digital services provided in India, including sales of digital content, platform services, and data-related services.
Britain prioritises caution in use of AI in finance, cites increased fraud as one of the biggest concerns
According to the Financial Conduct Authority (FCA) of Britain, the use of artificial intelligence (AI) in financial services must be accompanied with improved fraud prevention and resilience against hackers and outages.
In remarks made available to the public ahead of a speech, FCA noted that they had already noticed business models based on AI requesting authorization.
AI's use can help markets, including by lowering consumer costs, but it can also lead to imbalances if "unleashed unfettered."
As a result, investments in fraud prevention and operational and cyber resilience will need to increase at the same pace that AI adoption grows. The FCA will take a firm stance on this, providing reasonable protection alongside full support for advantageous innovation. As fraud and cyberrisks are likely to increase, the FCA also stated that they will continue to be extremely watchful over how businesses minimise these risks.
According to forecasts, the market for AI in fintech would expand at a rate of 28.6% and reach $31.71 billion in 2027. AI is currently being used in a variety of use case scenarios. 90% of fintech companies now employ AI, according to the Cambridge Centre for Alternative Finance.
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