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Indian Government Levy 6% Tax On Digital Ads

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If you are into Digital Marketing, here is a news that you should take a look at. The Government of India is all set to execute a special ‘e-commerce levy’ which can have far reaching consequences in the field of digital marketing. With this new taxation policy, simple online activities such as downloading content, blogging, and even sending or receiving emails will be taxed.

Source: www.trak.in

Source: www.trak.in

The Government has come up with a move which is smart and cunning. At a time when India is riding on a digital movement and everyone is influenced by the startup moves, this decision has been termed as ‘anti-digital’. The government will now be charging an equalisation levy of 6% on digital advertisements purchased by Indians. This indirect tax is also imposed on the international firms which digital advertising services. This will definitely influence giants like Google, Facebook, Twitter, and Yahoo. Above that, it is going to make it difficult and expensive for local Indian advertisers who used to rely on digital medium for the promotion of their business.

To understand the trend we must know…

What is Equalisation Levy?

Arun Jaitley, Finance Minister of India, in his budget speech, conveyed that any Indian company which pays more than Rs 1 lac to foreign digital companies for digital advertisements would now pay an equalisation levy of 6 per cent. Since these foreign companies don’t have a permanent base in India, therefore, they cannot be charged directly. Considering this, these companies are already paying taxes in their home countries and this is the reason, they cannot be double charged as per the international treaties. So to impose the tax on these international companies, this special equalisation levy has been introduced.

The report of 124 page recommends levy tax on specified digital facilities and services which include cloud computing, online advertisements and marketing, website designing hosting and maintenance, digital platforms for the sale of services and goods, digital space and online use or download of software and applications.  

As introduced in the Budget proposal, the Finance Bill, will be a new chapter as described by the Finance Minister. This is what Arun Jaitley has to say on the newly introduced indirect tax

‘Specified services received or receivable by a non-resident not having permanent establishment (PE) in India, from a resident in India who carries out business or profession, or from a non-resident having permanent establishment in India’

Source: www.economictimes.com

Source: www.economictimes.com

Other than the foreign companies, Indian startups would be extravagantly affected. Indian startups which are based on digital space and use online advertisements to get their customer’s business and attention. As of now, we are completely relying on Google ads and Facebook ads which are most popular as well as effective. If we go by statistics, Indian advertisers spent Rs 4,108 crore on Google AdWords in the year 2014-2015 whereas facebook earned Rs. 123 crore of advertisement business from Indian startups.

After this ‘equalisation levy’, both Facebook and Google would now pay an additional tax of 6%. This will directly effect Indian startups as the advertisement cost would also increase. With the introduction of this new taxation policy, there are speculations that it will open a new window for Income Tax department which may soon start to tax other aspects of digital services like software services.  

Reason behind this move

If we go by what experts say, Indian Government come up with this move due to the pressure from ‘Base Erosion and Profit Shifting’ guidelines of the Organisation for Economic Co-operation and Development (OECD) and G20 countries (whom India is also a part of). In the European countries, this taxation debate on international advertising firms are already going on and India had to agree upon this. The newly introduced policy on tax provident funds by Indian Government has already seen much of protest by Indians. Now, implementation of this tax policy is surely going to harm Digital movement and Startup India programmes. 

In case, you are wondering what are the digital activities that would be charged are discussed below. According to the recommendations made by the special committee by Central Board Of Direct Taxes. Here is the list

Digital activities to be charged

  1. Digital advertisements
  2. Online computing, blogging, online data or any activity related to digital medium
  3. Websites which provide space for advertisements
  4. Facilities for collecting online payments/wallets
  5. Downloading music/videos
  6. Online content used for commercial purposes or recreational purposes wherein digital advertisement can be implemented
  7. Designing, developing websites for clients (domestic and international)
  8. Downloading games and software/tools from Internet
  9. Digital tools/software used for TV/Radio advertisements
  10. Emails which are sent/received for commercial activities
  11. Any provision/service used for uploading, sharing, storing or distributing digital content

Well, there’s a relaxation to this. Only B2B activities and transactions have been recommended for taxing and not B2C. But in the online world, the rules of doing business are dynamic. Therefore, it might be difficult to classify which activities are to be included in the B2B services and which are to be classified as B2C.

There is more information awaited with respect to this policy as the Indian Government is considering the recommendations and we are still waiting for a formal announcement. Share with us your views by dropping a comment below and let us know if you are in favour of this move or not!

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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