Google Tax

What is a Google Tax?

Google tax also known as equalization levy is a type of indirect tax imposed on foreign digital marketing service providers who are providing digital marketing services in India. The main purpose of introducing the Google Tax was to create a level playing field between the domestic digital service providers and foreign companies to benefit Indian digital marketing service companies.

Why Was Google Tax Introduced?

The Indian Government introduced the equalization levy in 2016 to make sure that foreign digital service providers earning revenue from the Indian market contributed to the exchequer, even when it is not physically present in the country. The main purpose of this tax was to create a level playing field between Indian businesses that were subject to local taxes and global giants operating through online platforms.

Is Google Tax Mandatory?

Yes, Google Tax or Equalisation levy is mandatory for individuals and businesses making payments to foreign digital service providers. If an Indian business or entity pays an amount more than Rs.1,00,000 annually for digital advertising or e-commerce services from non-resident companies, the levy must be deducted before making payments. It is more specifically aimed at e-commerce giants such as google, Amazon, Twitter, Facebook etc.

The 6% levy on digital advertising must be paid by the Indian payer, while the 2% e-commerce levy is collected directly from the revenue of the foreign company. Not complying with these tax rules can lead to penalties and interest harges on delayed payments. This tax regulation helps make sure that foreign companies earning revenue from India must comply with tax regulations, reducing the loss of revenue for the Indian Government.

Why is India Scrapping the Google Tax?

The decision to scrap the Google Tax comes as a move to ease the ongoing trade tensions with United States. The US government had objected the tax levy stating it was discriminatory for the American firms. This tax required foreign companies to withhold and remit 6% charge on revenues earned from online advertising services provided to Indian businesses, thus increasing their compliance burden.

The levy led to an increase in the marketing costs for Indian Businesses, as the companies like Facebook and Meta shifted the tax burden to the advertisers. This move will foster and facilitate smoother trade relations with the United States.

How Will the Businesses be Affected?

Here’s how the scrapping of google tax will affect businesses -

• Gains for Foreign Digital Service Providers: The removal of Google Tax or the Equalization levy is expected to benefit both foreign digital service providers and Indian Businesses. Tech giants like Google, Meta, and Amazon will have reduced tax compliance requirements and an increase in the profit margins.
• Lower Marketing Costs: Indian advertisers that use global platforms for digital marketing will see reduced marketing costs, which will help increase the engagement and outreach.
• Economic Impact: This move will increase the popularity of digital marketing services investments in India by reducing the overall financial burden on the economy.

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