Supreme Court Ruling May Open Door to Dual Taxation on OTT Platforms, Gaming Apps: Report

The Supreme Court’s recent ruling permitting dual taxation on television broadcasters could have far-reaching implications for over-the-top (OTT) platforms, subscription-based digital content services, and gaming applications, industry experts have warned, according to an Economic Times report. The verdict is expected to increase the tax burden and create uncertainty in a sector that has so far operated under a streamlined Goods and Services Tax (GST) regime.

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Dual Taxation Permitted

In its judgment dated May 22 in the case of Asianet Satellite Communications and Others, a bench comprising Justices B V Nagarathna and N K Singh held that broadcasting encompasses two distinct aspects—delivery of service and provision of entertainment—both of which can be taxed separately by different authorities. This means the centre can levy service tax on the act of broadcasting, while state governments may impose entertainment tax on the content consumed by viewers, according to the report.

“This ruling is mainly premised on the basis that both taxes deal with different aspects of broadcasting activities and hence, there is no overlap in taxing powers of the Centre and state,” said Saloni Roy, Partner at Deloitte India, as cited in the report. While the case pertains to the pre-GST era, Roy noted that the decision could have “significant implications” for the digital content industry and has reintroduced an element of tax uncertainty.

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Aspect Theory

The judgment endorses the “aspect theory” in taxation, which allows different authorities to tax different elements of a single activity. According to Saurabh Agarwal, Partner at EY, this interpretation could pave the way for states to impose entertainment levies on digital platforms such as OTT services, social media, and gaming apps. “This goes against the spirit of GST, which was designed to unify and replace various indirect taxes, including entertainment tax,” he reportedly said.