Tax woes. Gatekeeper platforms exacting ‘digital tax’, start-ups tell House Panel

Start-ups that appeared before the Standing Committee on Finance have rued that the stringent billing policies and the usurious commissions (as high as 30 per cent) charged by the gatekeeper platforms are debilitating the digital business model for small entrepreneurs and such payouts virtually tantamount to exacting a tax paid to Big Tech to run their digital business in the country.

On its part, the Standing Committee has, in its latest report on ‘Anti Competitive Practices by Big Tech’, dealt with this issue in a different manner — not by recommending the blunt instrument of price control or cap on commissions. It has sought to solve the start-ups’ woes by going in for a time-tested approach of opening up the market to more competition. The panel has sought to put the obligations on Big Tech ex-ante to ensure a better playing field for start-ups, sources said.

“The solution mooted by the House Panel is enabling more competition in app stores and increasing the choice for customers in payment solutions (by allowing third party billing solutions),” sources said.

The Parliamentary Panel has now recommended that a Systemically Important Digital Intermediary (SIDI) — to be identified based on a criteria— would have to allow and technically enable the installation and effective use of third party software applications or software application stores using, or interoperating with, its operating system.

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The SIDI has to allow those software applications or software application stores (third party) to be accessed by means other than relevant core services of that platform, the panel recommended.

Furthermore, an SIDI should, where applicable, not prevent the downloaded third party software applications or software application stores from prompting end users to decide whether they want to set that downloaded software application or software application store as their default.

“What the House Panel is telling Big Tech is that you must open yourself to allowing third party App stores and also third party billing systems. This will be a game changer for start-ups as their choices will improve, commission payouts on downloads or in app purchases will come down and they can also build such solutions,” said a competition law expert.

“Basically Parliament Panel is institutionalising what the Competition Commission has been doing recently on a case to case basis by putting the obligations ex ante on Big Tech”.

Introducing ex ante provisions in the proposed Digital Competition Act (recommended by the House Panel) will cast more obligations for Big Tech and could prevent their anti-competitive conduct at the digital market ecosystem. 

India has till date been adopting an ex-post framework that swings into action only after the anti-competitive conduct has been done. The time consuming nature of the litigation in current framework was a big handicap and that is sought to be corrected through proposed ex-ante framework.

For this latest report, the Standing Committee examined top new tech companies and start-ups including Swiggy, Paytm, Zomato, OYO, MakeMyTrip, Ola and gaming outfits. 

The main message of these industry representatives to the House Panel was that “Big Tech app hosting platforms charge as high as up to a 30 per cent fee for in app purchases and subscription fees, which results in an unsustainable business model for apps for small Indian entrepreneurs. Some Big Tech companies are already charging and others have announced to charge this fee.

Further, the Big Tech companies have become gatekeeper firms with tactics undermining the natural forces of competition. With one simple policy change tomorrow, the Big Tech companies can widen the net to include other internet/digital businesses and force them to pay certain percentage of commission. It would appear that Indian start-ups literally have to pay taxes to the Big Tech companies to run their digital business in India.”

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