The Indian government has announced an equalisation levy, popularly dubbed as the “Google Tax”. It will come into effect from 1 June, aimed at taxing online digital portals like Alphabet Inc., Facebook Twitter and Yahoo that get significant online advertisement revenues from India. The government will impose an ‘Equalisation Levy’ of 6% on cross-border digital transactions of more than Rs 1 lakh ($1,500 approximately) a year from an Indian company to a non-resident for providing online advertisement services.
The equalisation levy is essentially an indirect tax on foreign companies who profit from Indian advertisers but cannot be taxed under current Indian laws since they are not registered in the country.
Last month, Internet and Mobile Association of India (IAMAI) had said that levy on online advertisement revenue of foreign companies would “severely raise the cost of doing business” for Indian tech startups. This is an impractical decision because it would substantially affect Indian tech-based startups.
Here are the Facts you should know about Google tax:
- Announced by the Finance Minister Arun Jaitley in this year’s Budget, the equalisation levy, popularly dubbed as Google Tax, will come into effect from June 1, 2016.
- An equalisation levy of 6% will have to be deducted by a business entity in India which makes payments exceeding Rs 1 lakh in the aggregate in a financial year to a non-resident service provider for specified services.
- The specified services covered by the levy include online advertising, provision for digital advertising space and any other service to be notified by government.
- The equalisation levy will serve as per rules notified by the income tax department. As per the notified rules, companies will have to file a statement of the specified services by 30 June next year electronically.
- If a company fails to collect the 6% equalisation levy from international companies for its expenditure on services, that expense will be calculated as a taxable profit of the Indian company.
- The move is aimed at technology firms that gain on online ads. This will bring them under India’s tax net. A similar tax structure is already in place Organisation for Economic Cooperation and Development (OECD) nations and European countries.