If you recall that during Union Budget 2016, the government had proposed a 6 per cent equalisation levy on B2B online services, advertising and overseas online purchases that cost more than 1 lakh. Well, popularly being dubbed as the ‘Google Tax‘, the levy has now come into effect.
The sole purpose of the introduction of the equalisation levy is to indirectly tax international internet companies, like Google and Facebook operating in India by adding a levy on payments made to them for digital advertising space or service for online advertisements.
This tax would need to be collected by the person making the payment, provided the amount being paid to non-residents exceeds 1 lakh and will have to deposited in the government’s account on a regular monthly basis. And the government has also introduced a 1 per cent per month of penalties and deduction for defaulters who aren’t able comply with the new tax laws.
In Indian government’s expanded scope of the equalization levy, almost every conceivable online services has been recommended to be brought under this latest tax reform. If you’re in any way connected to a non-resident online service provider, online advertiser, music and video download or any digital content have been included in this prescribed law.
The equalisation levy is focused to stop foreign tech player to nab money from the Indian advertisers and online service providers. The newly introduced tax will not effect any Indian-resident startups and companies, but will definitely increase accounting hassles because all companies use services provided by the silicon valley tech giants,
Since India has no huge platform to complete with and replace the likes of Google or Facebook, so the startups would have to probably pay extra for the services they have been enjoying in the coming days. And to be clear, this equalisation levy doesn’t apply on e-commerce startups and goods that have been imported from foreign lands.
The recommendation from the IAMAI clearly stated that the Equalization Levy is only chargeable on any sum that is:
– received by a non resident
– from a resident in India or a permanent establishment in India
– as a consideration for the specified digital services.
The only answer that this move from the government demands is that are they ready to cut off its rapidly growing $1 billion advertising industry, which is estimated to grow over 47.5 per cent this year alone. The report however states that countries could introduce the levy in their domestic laws as an additional safeguard against profit sharing, provided they follow the current guidelines and treaty obligations set forth by the government.
Let’s just hope this equalisation levy doesn’t bring new troubles to the government already struggling to make its presence felt in the global scenario by introducing initiatives like ‘Digital India’ and ‘Make in India’ program.