The 6% equalization fee, sometimes referred to as the “Google tax,” on internet advertising services offered by international tech firms like Google and Meta is probably going to be eliminated in India. According to news agency Reuters, the tax will be eliminated on April 1, 2025, as part of changes to the Finance Bill.
This action coincides with initiatives to strengthen economic ties with the US, which had earlier denounced the tax and threatened to impose retaliation duties. It is anticipated that the tax’s repeal will help India’s digital economy, advertising, and tech enterprises. In 2016, the Equalization Levy was implemented to tax payments made by Indian enterprises to foreign firms for the provision of digital advertising services.
Its goal was to guarantee that multinational internet companies who do not have a physical presence in India but generate substantial revenue from Indian users pay taxes to the Indian government. The levy, which was first set at 6% for online advertising services, was later increased in 2020 to 2% for all Indian e-commerce businesses with yearly sales over Rs 2 crore. After a deal between the US and India, the 2% charge was removed last year. The government now intends to eliminate the initial 6% tax as well.
The decision to remove the tax is part of India’s negotiations with the US to avoid trade conflicts. In reaction to the equalization levy, the US had previously threatened to apply duties of up to 25% on Indian goods like jewelry, shrimp, and basmati rice. The tax elimination, according to experts, will assist strengthen ties between the US and India and avert further trade problems. In an effort to defuse tensions with the US, some nations, including the UK, are also thinking about eliminating comparable digital taxes. “Removal of the equalisation levy is a smart move by the government, as collections weren’t very high, and it was a concern for the US administration,” Sudhir Kapadia, senior advisor at EY told the news agency.
It is anticipated that international tech companies doing business in India will benefit from the repeal of the Google tax in a number of ways. The removal of the 6% tax will make it more affordable for Indian companies to advertise on websites like Google and Meta, which will stimulate more investment on digital advertising. The fee will no longer need to be factored into the price of tech firms, increasing their profitability. Reduced expenses might draw in more advertisers, increasing digital platforms’ earnings. A stable trading environment for multinational corporations may be ensured by India’s action, which could stop the US from enacting retaliatory duties.
More foreign investment in India’s digital sector is anticipated as a result of the tax’s removal. Businesses that depend on digital marketing may gain from increased expenditure on online platforms as a result of cheaper advertising expenses. Additionally, in lieu of the equalization levy, the government has suggested eliminating some tax breaks that are accessible to international tech firms. This implies that businesses may still be subject to other forms of taxation even though the levy will no longer be used.
The Finance Bill suggests amending the regulations governing offshore fund management in addition to doing away with the equalization levy. One significant change eliminates the word “indirectly” from a clause that prohibited Indian citizens from investing in offshore funds. The goal of this modification is to facilitate the transfer of offshore funds to India. Anil Talreja, partner at Deloitte India, told the news agency, “The proposed amendments are meant to clarify tax laws and address issues faced by businesses.”
