Google tax kicks in starting June 1
The finance ministry has notified that the equalisation levy (popularly known as Google tax) introduced in this budget, will come into force from June 1. As of now, it will apply to payments for online advertisements made by Indian business entities to non-residents (such as Google,Yahoo, Twitter, Facebook) where the aggregate payment in a financial year to a non-resident exceeds Rs 1 lakh. Only B2B transactions attract this levy.
Speaking to TOI, a senior government official said: “While the finance ministry has the leeway to expand the services to be covered by the equalisation levy, via a notification at any time during the year, it is unlikely to do so in the coming months. We plan to adopt a wait-and-watch approach. Perhaps, in the next budget, a call may be taken on expanding the ambit of equalisation levy.”
Amid stiff opposition from countries such as the US, India had worked hard to incorporate in the Base Erosion and Profit Shifting action plan, the option for countries to levy tax in a digital economy, one of the options being an equalisation levy. India is the first country to utilise this option, by introducing equalisation levy.
A panel set up by the finance ministry to look into taxation of e-commerce transactions had, in addition to online ads, recommended a wide range of services for imposition of equalisaiton levy, ranging from online content; designing, creating, hosting or maintenance of a website; use or download of online music, movies, games, books et all, online search, online maps or global positioning systems (GPS) applications.
From June 1, 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. For now, specified services cover online advertisements, provision for digital advertising space or any other facility or service for the purpose of online advertisements.
If the non-resident service provider has a permanent establishment (place of business in India) and the bill is raised by such Indian entity, then the equalisation levy will not have to be deducted by the Indian payer.
The equalisation levy, is expected to impact the bottomlines of companies such Google, Yahoo, Facebook, Twitter and others, unless they deal with Indian business entities via their subsidiaries in India.
The MoF has simultaneously also issued equalisation levy rules, outlining aspects such as the mode of deposit of this levy or forms that are required to be furnished by the Indian deductor.
This levy has come in for criticism from some quarters, as the foreign entity, will not get a foreign tax credit for such deduction in its home country. Second, as tax is already deducted at source on the payments made to the foreign entity, imposition of an equalisation levy, it is viewed amounts to double taxation.