Dated Today: Decoding the situation in the Indian Finance Ministry – ‘We seem to have taxed this young guy’s restaurant expenses, fuel expenses, shopping expenses, his phone/internet expenses, his business earnings and even his beer, we have managed to make him to cry over the import duty on his Budweisser more than what he did over his breakup! So what’s left? … (thinks) Let’s leave out this poor common man for now.. What about the Multinationals like Google & Facebook?? They seem to be having a good time in India.. Let’s make some cash by taxing their digital ad revenue this time….’
Well, this is not exactly exactly how the ‘Google Tax’ was born! But it does seem to be realistic, right?
So What is Google Tax?
As stated above, Google tax is a way of extracting some cash from the hands of multinationals like Google, Yahoo and Facebook by taxing (withholding) 6 Indian Rupees(INR) from every 100 INR being spent on digital ads. Literally, for every click of the mouse on an ad which pops on Google or Facebook, the Indian Government makes money out of it.
When Was It Born?
While the legality of such taxation for not being a part of the Indian Tax books is debatable, the Finance Ministry managed to squeeze Google Tax into the Annual Financial Budget of 2016/17. However, the taxation has come into effect from June 1st of 2016 onwards.
What’s the Theory Behind Google Tax?
While the Government of India justifies it in the form of ‘Equalization Levy’ , which states that any Indian merchant who is liable to pay a sum of more than 100,000 INR to any multinational firm like Google for advertising his/her business in the digital world, he/she shall withhold 6% of that amount which would in turn go to the Government. It is to be noted that Google’s father – Alphabet paid around 4% of its income as taxes in the last financial year, Ebay paid around 5% and Amazon paid around 1.2%. By all means, the imposition of 6% as tax on digital ads seems to be a bit inflated on this scale.
What remains unclear is with respect to the Government’s claim that the withheld amount (6%) shall be taken off the revenues of the advertisement provider, however, in the long run this could potentially trigger an escalation of advertisement rates from digital advertisement firms to overcome this loss in the form of Google tax.
Is Google Tax Good for Us?
Google Tax has been built on the platform of the discussions in Base Erosion and Profit Shifting Project (BEPS) which aims at having tax transparency over the G20 member nations. India seems to have made some progress when it comes implementing such a policy which could aim at biting off from the creamy layer of profits from the $1 billion dollar digital advertising market which is growing by leaps and bounds every year. Definitely, this is not music to the ears of Google, Facebook or Amazon and they could end up retaliating with increase in advertisement rates as mentioned earlier, which could end up hurting the businessman in India who wishes to advertise on digital platforms.
The real question to ponder upon is whether India has got enough mettle to convince the OECD to gain acceptance for the ‘Equalization levy’ clause, else it would be a smarter idea to impose this 6% as yet another tax on a business.
Google Tax could be good news for the government as any additional source of income to it would be. However, if this income comes at the cost of hurting online business growth sentiments, I do not think that the imposition of Google Tax would go down as one of the smart decisions made by Mr. Arun Jaitley during his tenure.
What If We Do Not Pay Google Tax?
If you fail to withhold 6% of your digital advertisement expense (while spending more than 100,000 INR on digital ads) , this amount would not be entitled to be filed under expenses while filing your tax returns and this in turn would increase your taxable income, thereby increasing your taxes which you as a businessman ought to pay every year.