📢 Why India has decided to abolish the ‘GoogleTax’ ?
As part of the 35 amendments to the Finance Bill, 2025, the Centre wants to remove the 6 per cent equalization levy (EL) it charges on digital ads from April 1, 2025.
✅What is equalization levy
By definition, an equalization levy is a levy to ‘equalise’ the tax component of a resident e-commerce company as well as a non-resident e-commerce company.
— As part of the 35 amendments to the Finance Bill, 2025, the Centre wants to remove the 6 per cent equalisation levy (EL) it charges on digital ads from April 1, 2025. This has been in force since 2016, on payment exceeding Rs 1 lakh a year to a non-resident service provider for online advertisements.
— This levy, colloquially called “Google Tax,” affects online advertising services provided by offshore technology firms like Google, Meta and Amazon, requiring them to withhold and remit the tax to the government.
— In 2020, after amending the Financial Act, 2020, the government expanded the ambit of the equalization levy for non-resident e-commerce operators involved in the supply of services, including online sale of goods and provision of services, with the levy at the rate of 2 per cent.
—However, the United States has been critical of this tax and called it “discriminatory and unreasonable” arguing that domestic companies were exempt. That led to India repealing the 2 per cent EL in 2024. However, the 6 per cent levy had continued.
— In October 2021, India, the United States, and fellow members of the OECD/G20 Inclusive Framework agreed establishing a two-pillar approach to tackle the tax complexities posed by the digital economy’s rapid growth, aiming to create a fair and cohesive global framework.
✅Base Erosion and Profit Shifting (BEPS):
—BEPS refers to tax avoidance strategies used by multinational enterprises (MNEs) to exploit gaps and mismatches in tax rules to artificially shift profits to low or no-tax locations.
—This practice erodes the tax base of higher-tax jurisdictions, leading to significant revenue losses for governments.
—The OECD/G20 BEPS Project aims to address these issues by establishing international tax rules that ensure profits are taxed where economic activities take place and value is created.
✅Key aspects of the BEPS action plan relevant to this discussion:
— Addressing the Digital Economy: A significant focus of BEPS is on the challenges posed by the digitalization of the economy. Traditional tax rules, based on physical presence, struggle to capture the value created by digital businesses that operate across borders without a substantial physical footprint.
— Ensuring Taxation Where Value is Created: A core principle of the BEPS project is that profits should be taxed where the economic activity generating those profits occurs.