Till date, it’s been a hard task to account for taxes accrued by digital giants such as Google, Facebook, or even Yahoo in India.
But earlier this year, Finance Minister Arun Jaitley, in his budget speech, announced the introduction of an equalisation levy of 6 percent for any payment that exceeds Rs 1 lakh a year from an Indian company to a non-resident for providing online advertisement services. This has been termed (informally) as the Google tax.
The levy is likely to increase the cost of doing business for the Indian arms of global giants Google (Alphabet) and Twitter and may force Facebook to consider registering an Indian entity to compete effectively with its online rivals. Here’s everything you need to know about the Google tax that takes effect from 1 June.
What is Google Tax?
The term ‘Google Tax’ refers to charges levied on companies like Google and Facebook who make revenue on the digital medium in the form of ads. In most countries, Google and co. pay their respective taxes which are neglible compared to the numbers they usually clock across varied markets.
In 2013, Google’s UK revenues were registered at $5.6 billion, out of which the search giant paid a meager $20 million as corporate tax. The Registrar of Companies’ records show that Google made a profit of Rs 3508 crore (FY ending 2014). Facebook, meanwhile, clocked revenue of Rs 123.5 crore over the same period.
Digital companies in India will have to pay up to 6 percent of their ad revenues in the form of Google Tax which are now applicable. The tax ruling is applicable to companies that pay to avail B2B services and also, do not have a India-based setup right now.
The tax policy is part of a project by the Organisation for Economic Co-operation and Development (OECD). The project aims to bring the G20 countries on a single platform and prevents big corporations from evading payment of taxes in respective markets.
Is Google Tax Good or Bad for India?
Well, that’s the intriguing part about bringing Google Tax on board. India as a digital market is in its infancy, with most companies still laying their groundwork. For an economy that’s looking to bread the culture of startups, this tax will hinder the growth prospects of budding companies.
Although it legalizes startups in India, but its fair to say that the Google Tax is just another means to eek money out of the IT giants.
India’s recent admission to the list of countries part of the OECD puts them alongside many European countries.
(The story was first published on 5 March, 2016)
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