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Equalisation levy: Google Tax In Effect From June 1

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On Monday, the Indian Government announced rules relating to equalisation levy. In simple words, Google tax for taxation of payments for international digital services by Indian businesses. This has been earlier introduced in the Budget.

This levy is only applied to B2B transactions.

The levy includes specific services like provision for digital advertising space, online advertising, and other services to be notified by the government. These rules will come into effect from 1st of June.

Arun Jaitley, Finance Minister, had announced the equalisation levy, coming out of Base Erosion of OECD as well as Profit Sharing Project, on payments made by businesses for selective digital services to a non-resident entity not having a permanent establishment in India.

With these taxes, they are indirectly taxing internet giants like Google and Facebook for money they have been making from Indian Advertisers by imposing a levy on the payments these advertisers make.Source: www.economictimes.com

On the basis of the recommendations of a panel set up the Central Board of Direct Taxes and included representatives of the industry, the levy was structured. According to tax experts, businesses will have to begin preparing now as the rules have been announced.

“Equalisation levy made various players sit up and take notice, especially since this is India’s first step to tax digital economy , and one of the first few internationally”- Rakesh Nangia, managing partner, Nangia & Co.

He added by saying

“Now with rules in place, people need to start taking action, since the statement of specified services procured starting June 1, 2016 has to be reported in the statement to be furnished by June 30, 2017″.

According to him, rules provide clarity on how an assessee can appeal against the order made by the assessing officer.

In a panel set up by the ministry of finance to look into taxation of e-commerce transactions, recommended a wide variety of services for imposition of equalisation levy, ranging from download or use of online games, movies, music, books; online content; creating, designing, maintaining or hosting of a website; online search, online maps and global positioning systems apps (GPS apps).

The Government official on Equalisation levy:

“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.”

Let us understand this from the beginning…

Google Tax: What is it?

In effect from June 1, an equalisation levy of 6 percent will have to be deducted by a business enterprise in India which makes payments of more than Rs 1 lakh in the aggregate in a financial year to a non-resident service provider for specific services.

Services Under this rule: What are they?

As of now, the specified services include service for the purpose of online advertisements, provision for digital advertising space or any other facility, and online advertisements. It is expected that this list will soon expand.

The Reason for this tax?

This taxation is aimed at giant technology firms that gain on online ads. This will thus bring them under the tax net of India. There is a similar tax structure is already existing in Organisation for Economic Cooperation and Development (OECD) nations and European countries.

How will this Tax Impact us?

Anyone and everyone concerned with online setup and using Google or Facebook for marketing will be impacted by this new rule.

What happens if a firm fails to deduct the tax?

In the case of tax failure, the business or firm owner won’t be allowed to consider the expenses in calculating taxable profits. This means that there will be an increase in their taxable income and liability.

Opposition from the West

Even after stiff opposition from the western countries like the US, India has successfully incorporated the Base Erosion and Profit Shifting action plan with the option for countries to levy the tax in a digital economy. Out of which one of the options is equalisation levy. Also, with the introduction of equalisation levy, India is the first country to utilise this option.

Final Words

There is a lot of criticism with respect to this levy for some months now. This is because the foreign companies will not get a foreign tax credit for these kinds of deductions in its parent country. Also, the imposition of equalisation levy is viewed to be double taxation as the tax is already deducted at source on the payments made to the foreign entity.

This move by Indian Government to levy 6% tax on Digital ads is going affect everyone using the internet nowadays for business purposes.

What do you think will be the effect of this Google tax? Does this mean the foreign companies will be discouraged to do business in India?

Sakshi is a content marketer during the day and a reader by night. She writes content sprinkled with a twisted imagination. She has done her graduation in psychology from Delhi University and has an insane love for history.
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