6% Tax on Indian Advertisement Fees of Google, Facebook and Yahoo Gets Effective

Indian government is going to impose 6% tax on advertisement fees that the local merchants pay to the foreign websites like Google, Facebook or Yahoo. The newly imposed tax is scheduled to get effective from June 1.

Formerly introduced as equalization levy by the Indian Finance Minister Arun Jaitley, it is now widely familiar as ‘Google Tax’. However, the tax is applicable for advertisements of Indian wares broadcast through any foreign website.  

Governments across the world are getting increasingly worried over the meager amount of taxes paid by the multinationals. India has approached one step forward to fight with the mighty tech giants who are now widely accused of dodging taxes using international tax devices like ‘Double Irish’ and ‘Double Sandwich’.

Alphabet Inc., parent organization of Google and one of the core accused, has paid 4% income tax against its global sales revenue during the last taxation year. Amazon appears to take the lead over the industry in tax dodging while paying only 1.2% income tax for the same period, reports Bloomberg.

Online advertising, provision for digital advertising and government notified other services will go under the new tax net. It will be specifically applied on payments made by businesses for specific digital services to a non-resident entity not having permanent establishment in India. Idea for the new tax emerges from OECF’s Base Erosion and Profit Sharing project and aims to receive indirect tax from the internet giants, according to a report published in The Economic Times.

Since sales revenues of most foreign internet companies are usually laundered to a tax haven country, so the equalization levy will be effective in bringing them under Indian tax system. But analysts differ with the idea arguing such move will only make digital services in India pricier and Indian advertisers will transfer the burden to their customers. Hence consumers will be the ultimate victim of the new tax, reports The International Business Times.

Indian tax authorities have studied the scope of taxation for different e-commerce companies and are considering for inclusion of digital economy services under the equalization levy. However, Indian finance ministry is yet to decide on the inclusion proposal.

Some analysts have questioned whether Indian government is hampering its $1 billion digital advertising industry. The industry is expected to grow by 47.5% during this year and up to $60 billion by 2020. Government’s approach over the new tax suggests, the tool may be widely used in the flourished digital advertising industry.