Also in this letter:
- 1mg plans one-hour medicine delivery
- Consulting firms tap India amid WFH
- The rise of alt-meat in India
Google, Facebook, Twitter could see higher tax bills from this year
Google, Facebook and Twitter could see their domestic tax bills increase substantially from this year, sources told us, as they appoint nodal officers to comply with India’s new IT rules.
How it works now: Top tech companies don’t pay domestic taxes on their entire income as they do not have a presence or permanent establishment (PE) in India.
In 2016, the Indian government introduced the equalisation levy—a 6% tax on advertising revenue and 2% on digital transactions—to capture a portion of what these companies earn in India.
The companies pay tax on a ‘cost-plus basis,’ on about 8-10% of total revenue, similar to an outsourcing unit in India.
All that could change this year. The tax department could argue that appointing nodal or compliance officers in India under the new rules implies these companies have a permanent establishment in India, and should thus pay at least 25% but possibly as much as 42% tax on the entire income they generate here, experts said.
Counter-measures: Over the past two weeks, these firms have been consulting their lawyers and other advisers for a way around this.
Another lawyer for one of the companies said, “Our defence is going to be that any compliance that’s mandated by the government doesn’t create a permanent establishment for us, because we do not require these functions to operate smoothly. The only reason why we have these functions in India is because we have been forced to have them.”
India’s reply to UN: Meanwhile, India has told the United Nations that the government finalised the new IT rules after broad consultations with various stakeholders, civil society, industry associations and organisations.
- “The Permanent Mission of India would like to inform that the Ministry of Electronics and Information Technology and Ministry of Information and Broadcasting undertook broad consultations in 2018 with various stakeholders, including individuals, civil society, industry association and organisations and invited public comments to prepare the draft rules. Thereafter, an inter-ministerial meeting had discussed in detail the comments received in detail and, accordingly, the Rules were finalised.”
Backstory: On June 11, three special rapporteurs from the UN raised concerns about certain parts of the legislation in a letter, and wrote that “due diligence obligations” placed on intermediaries may lead to “infringement of a wide range of human rights”.
The letter said that India’s new IT rules are in violation of rules laid down in the International Covenant on Civil and Political Rights (ICCPR), a key international human rights treaty.
“As a global leader in technology innovation, India has the potential to develop legislation that can place it at the forefront of efforts to protect digital rights. However, the substantially broadened scope of the rules is likely to do just the opposite,” the letter read.
Tata-owned 1mg plans one-hour delivery of medicines
E-pharmacy 1mg, now majority owned by the Tata Group, is planning to introduce express delivery—typically within an hour—of medicines to consumers, sources told us.
It already delivers medicines in 4-5 hours in parts of New Delhi and Gurugram, and will now ramp up the service into an express delivery vertical across the country.
Yes, but: On-demand delivery of medicines within an hour or two has been a tough space to operate in because of high costs and low order sizes.
The average order size on e-pharmacy platforms is Rs 1,200-1,500, but this drops to just Rs 600 for express deliveries, insiders said. It could be even lower if the platform doesn’t have a minimum order size.
- Myra, a Bengaluru-based startup, was primarily focused on one-hour delivery of medicines but had to sell itself to Medlife in 2019 as it could not sustain the business.
- Reliance Industries-owned Netmeds offers a standard delivery timeline of 24-48 hours. This goes up to 72 hours on some platforms based on local lockdown rules.
The long game: A startup founder said express delivery is a long-term play. “You have to fight for three to five years with enough capital. For example, in a city like Bengaluru, you would need four warehouses to service express deliveries compared to one or two for 24 to 48-hour deliveries. In Mumbai — strictly within city limits — this number would be seven or eight, while in the Delhi-NCR region you would need close to a dozen.”
The pandemic has brought windfall gains for the Indian operations of consulting firms as a lot of global work is now flowing into the teams here.
Tweet of the day
Consulting firms tap India amid WFH
Global consultancy firms such as PwC, EY, KPMG, Evalueserve, Alvarez and Marsal are increasingly pushing due diligence, deal preparation and documentation-related work to India, and passing on the benefits of the wage arbitrage to clients.
From starting new teams to adding more people to their existing workforce, these firms have beefed up India resources to ride the surge over the past 12 months.
- “With the pandemic inducing lockdown the world over, people realised that if work has to be done remotely, why not tap into highly talented quant-oriented markets such as India that also offer economies of scale and vast talent pool to cater to the demand,” said Dinesh Arora, partner and leader-deals at PwC India.
A startup edge for brokerages
In February 2018, Pranjal Kamra uploaded two videos online. The first dealt with the risks of investing in bitcoin and the second with the perils of smallcap stocks.
- Call it clairvoyance or luck, bitcoin prices crashed by over 50% a few days later and smallcap stocks tumbled soon after.
Overnight, Kamra became a widely followed investment YouTuber, but he didn’t want to remain an influencer.
He started Finology, a startup that generates content to promote financial literacy, runs an investment advisory and hosts two platforms that help investors choose the right stockbroker and also dabble in some data analytics before investing.
His company is among the more than three dozen startups—including Sensibull, GetCogno, Trendlyne, Algobaba and Smallcase—which have forged a symbiotic partnership with leading stockbrokers and other financial intermediaries. (read more)
A look at the shareholding pattern of Paytm parent One97 Communications, ahead of the IPO.
Made-in-India Impossible Burger? Maybe…
A survey, led by Christopher Bryant from the University of Bath in the UK, shows that 56% of Indian meat-eating city dwellers were likely to buy lab-grown meat regularly, while 63% would switch to plant-based ‘meat’.
That’s brought cheer to dozens of Indian startups and companies working in the alternative meat sector. (read more)
How Mumbai outsmarted the coronavirus
When the second wave of the Covid-19 pandemic hit Mumbai a few months ago, the local authorities were quick to respond.
- They got in touch with patients within 24 hours of them getting tested as against 48 hours during the first wave.
- This resulted in faster allocation of hospital beds and other necessary steps, resulting in what has come to be known as the Mumbai Model.
This was made possible in large measure due to the work done by smart city solutions firm Quantela. (read more)
Other Top Stories We Are Covering
MRCC-G-Cube deal: US-headquartered MRCC Group has announced the acquisition of digital learning firm G-Cube in what it claims is the largest deal in the corporate learning space in India. People in the know said the IT firm paid more than Rs 100 crore for the acquisition.
The cloud potential in India: When the Covid-19 pandemic hit companies last year, it accelerated the digital journey for most organisations. Indian enterprises have just scratched the surface of the potential that cloud technology provides, according to a new paper.
Infosys is sprucing up the new I-T website: Infosys is planning to roll out new functions on India’s income tax e-filing portal, after addressing a series of technical glitches that has impacted performance and stability of the site.
Global Picks We Are Reading
■ Time for a New, Digital Bretton Woods (Barron’s)
■ Inside the ‘deadly serious’ world of esports in South Korea (NYT)
■ El Salvador’s bitcoin gamble (Protocol)
Today’s ETtech Morning Dispatch was curated by Zaheer Merchant and Tushar Deep Singh in Mumbai.