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Data transfers between Facebook group companies need to be taxed: KN Govindacharya to Finance Minister

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Following the raging debate around the latest updates to WhatsApp’s privacy policy, RSS ideologue K.N. Govindacharya urged the government to tax data transfers between Facebook group companies. In fact, he said that data transfers done by all tech giants should be taxed “with retrospective effect”.

“This is a big opportunity to impose taxes on Facebook and other tech giants for data sharing arrangement in India for huge commercial gains,” Govindacharya wrote in a letter to Finance Minister Nirmala Sitharaman. He also said that specific provisions be added to the upcoming Finance Bill to make this taxation possible. MediaNama has seen a copy of the letter.

“It is a well-known fact that the impact of digital sector has been on a wide array of services,” he said in the letter. “As the economy contracts, the Government will have to look at newer sources of taxation. It is submitted that the Digital Sector is one such goldmine, which has been enjoying a laissez faire regime”.

Govindacharya also estimated WhatsApp’s value as an argument to why the company, along with other big tech firms should be taxed on data transfers: “WhatsApp, which had 46.5 crore users, was acquired by Facebook in 2014 for USD 19 Billion. In 2020, it has 200 crore users, and its value can be considered to be about USD 90 Billion. With 40 crore users in India, the value of WhatsApp may be around 18 Billion dollars, i.e. around Rs. 1,48,000 cr. (One Lakh and Forty Thousand Crore Rupees),” Govindacharya estimated.

Since WhatsApp has claimed before the Supreme Court that it is in compliance with the Reserve Bank of India’s data localisation mandate, it is clear that WhatsApp is storing its data in India, and its income is “liable to be taxed in India,” Govindacharya added in the letter. He also said:

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“Most of these companies operate in name of their global brand, but have created a corporate web, which helps them escape taxes. The research by Centre for Accountability and Systemic Change (CASC) shows that the top tech companies create a valuation of about Rs. 20 Lakh Crore in India. Hence, the need for taxing this data transfer is more than ever before.” — KN Govindacharya

Updates to WhatsApp’s privacy policy and the repercussions

Updates to WhatsApp’s privacy policy had left many a users concerned about their data being potentially shared with parent company Facebook. The updates, which are mandatory for users to accept for using the service, allow for a closer integration of WhatsApp into the larger Facebook ecosystem and group of companies.

WhatsApp’s updated privacy policy said that the service will use a device’s IP address, and other information like phone number area codes to estimate their general location, even if a user doesn’t use the its location-related features. Businesses that users interact with on the platform may share information about their interactions with users, with WhatsApp.

This prompted the IT Ministry to call on the Facebook-owned messenger app to withdraw proposed changes to its terms and conditions. The company also announced that it was postponing its launch until May 15 (the earlier deadline for people to accept the policy was February 8). An Advocate has also filed a case in the Delhi High Court against these updates, calling it an “absolute violation” of the right to privacy, claiming it gives the company a 360-degree profile of a person’s online activity.

Full text of K.N. Govindacharya’s letter to Finance Minister

Sub: Taxes on bulk data transfer by Facebook & other Tech Giants Ref: WhatsApp acceptance of data monetisation before Parliamentary  Committee on Information Technology

1. Kindly find attached news report dated 21 January 2021 with details of proceedings of Parliamentary Committee on Information Technology wherein WhatsApp has admitted about sharing of data with Facebook since 2016. Moreover, Facebook group has also admitted to monetizing the users’ data (Annexure 1).

2. On 19.01.2021, CBI has registered an FIR against Cambridge Analytica. This FIR reveals the nefarious business of harvesting and sale of personal data (Annexure 2). It is rather surprising that Government authorities and even Parliamentary Committees meet Indian officials of tech giants, but when it comes to responsibility, the Government writes to the Global CEO. However, the futility of such letters is evident from the fact that Cambridge Analytica did not even reply to the Government of India, a fact which is also recorded in the FIR registered by CBI.

3. There is a huge debate on delay in data protection law, non-notification of IT Intermediary Rules and violation of Public Records Act due to unauthorised usage of social media by Government authorities. Crores of Indians are agitated after the WhatsApp notified its new data sharing policy with Facebook. Union Government has also asked 14 questions from Global CEO of WhatsApp. At the same time, this is a big opportunity to impose taxes on Facebook and other tech giants for data sharing arrangement in India for huge commercial gains.

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4. The year gone by has transformed the world. When every sector of the economy has suffered, technology companies have witnessed exponential growth. As per the latest Ericsson Mobility Report, India has highest monthly usage per smartphone. The average traffic per smartphone user in India increased from 13.5 GB per month in 2019 to 15.7 GB per month in 2020. The global average in comparison is around 9.4 GB. This tremendous data consumption enables a great gain for Tech Giants like Google, Facebook, WhatsApp, Apple etc., which otherwise does not translate into due taxes in India. It is a well-known fact that the impact of digital sector has been on a wide array of services. As the economy contracts, the Government will have to look at newer sources of taxation. It is submitted that the Digital Sector is one such goldmine, which has been enjoying a laissez faire regime.

5. WhatsApp has claimed before the Hon’ble Supreme Court that it complies with RBI data localization norms, after which it was allowed to roll out its Payments Services on a national scale. This shows that WhatsApp is storing data in India, and their income is liable to be taxed in India. However, when WhatsApp shares its data with Facebook Inc., it will automatically constitute violation of RBI data localization norms, as the Payments Data will go out of India. It is submitted that data of millions of Indians is very valuable, and the data transfer between Facebook group companies need to be taxed.

6. France has resumed collecting what is known as its digital-services tax. Other countries, including Italy and the U.K., whose similar taxes went into effect this year, are also set to begin their collection in coming months. The Government of India has collected around Rs. 4000 crore in the form of “Equalisation Levy”. Therefore, the amount that be recovered from these
tech giants in form of Income/Corporate Tax is of huge proportions.

7. In this regard, I invite your attention to my earlier detailed representations  dated 10.06.2019 and 27.01.2020 seeking imposition and recovery of taxes from Tech Giants. There are various provisions in Companies Act, 2013 and Income Tax, 1961 and other statutes as detailed in previous representation, to tax the tech giants. However, Government may make a new beginning by inserting specific provisions in the upcoming Finance Bill (Budget 2021) to impose tax on data transaction of tech giants in India. In this background, we are submitting this memorandum.

8. In addition, the Government should make the tech giants accountable. The Government had stated before the Hon’ble High Court of Delhi in WP(C) 3672/2012 that “That as and when it comes to the notice of the Department of Service Tax, that there is a shortfall/non-payment of service tax by any company/entity, necessary action is initiated in accordance with law for effecting recovery etc. from such defaulting entities.”

9. Most of these companies operate in name of their global brand, but have created a corporate web, which helps them escape taxes. The research by Centre for Accountability and Systemic Change (CASC) shows that the top tech companies create a valuation of about Rs. 20 Lakh Crore in India. (Annexure 3). Hence, the need for taxing this data transfer is more than ever before.

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10. WhatsApp, which had 46.5 crore users, was acquired by Facebook in 2014 for USD 19 Billion. In 2020, it has 200 crore users, and its value can be considered to be about USD 90 Billion. With 40 crore users in India, the value of WhatsApp may be around 18 Billion dollars, i.e. around Rs. 1,48,000 cr. (One Lakh and Forty Thousand Crore Rupees). It is suggested that the best way to regulate internet companies is through adequate taxation. We are hopeful that you will consider this very important aspect by inserting specific provisions in the upcoming Finance Bill (Budget 2021) to impose tax on data transactions of tech giants in India, with retrospective effect, as it may help the Government bring in much needed revenue and improve the lives of Indians.

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