Microsoft has started sending emails to the subscribers of Office 365 in India – a price hike is imminent, and it might not be Microsoft’s fault.
In the early days of November, the Government of India made a few amendments to how the service tax was to be collected from online services – one of the changes was to a clause that has perhaps resulted in this hike.
The Indian Government
The amendment was made to the ‘Place of Provisions of Services Rules’ for ‘online information and database access or retrieval of services’ by India’s Central Board of Excise and Customs – long story short: the amendment redefines the ‘place of provision’ of a service.
Before the 1st of December – that’s when the amendments came into effect – the ‘place of provision’ was the location of the service provider; after the 1st of December, the ‘place of provision’ is the location of the service receiver.
For example, Netflix was providing its subscription service to an Indian citizen from the Netherlands – that’s where the place of the provision was, and therefore India choose not to apply its service tax on it. After this amendment, Netflix can still provide its subscription service to an Indian citizen from the Netherlands – except, the place of provision is now India, as the new amendment now dictates.
This simple change puts all of the international online service providers under the umbrella of Indian service tax – which sits at 15%. Indian service providers were already paying this tax – their ‘place of provision’ was always India – but now the foreign services are being taxed as well.
While Microsoft’s email does not make very clear, the reasons for this hike; it is perhaps, safe to assume that the Indian Government’s new amendments are, in fact, the driving force behind this.
In its email, Microsoft states that all renewals and new subscriptions after 11th of January, 2017 will be charged at the new price – from ₹4,199 to ₹4,619.
Of course, if we apply the 15% service tax to ₹4,199 – we get ₹4,828; while that is ₹209 higher than Microsoft’s new offer, it’s not a big difference in the grand scheme of things.
The troubling question is – is Microsoft bearing the cost of this tax for its users until 11th of January? The Indian Government’s amendment came into effect starting from 1st of December, while Microsoft is only changing its price on 11th of January.
Notably, Netflix also reduced its base price to accommodate for the service tax in the country, bearing the cost of tax for its customers.
The question will remain a mystery unless Microsoft chooses to answer. Hopefully, Microsoft will put out an explanation in detail for the hike – but if it doesn’t, at least we had fun speculating.