The 2 percent digital levy will be charged on all Google ads that are visible in India, even if both buyer and seller are not from here. This may set a precedent. But G7's proposed global minimum corporate tax may change all that.
Google will be passing on the burden of India’s 2 percent equalisation levy to advertisers who use the platform. While the levy was introduced in April 2020, after the 2020 Budget significantly expanded its scope, Google will impose the tax only from October 2021.
The levy will be charged on all advertisements that are visible in India, even if both the buyer and seller are not from India. Google has notified its advertising clients of the change, calling India's levy "jurisdiction specific surcharges."
The equalisation levy was first introduced in 2016, with an aim to charge 6 percent on the revenue collected from digital advertisements from Indians to non-residents of the country. However, the scope of the levy was widely expanded in a 2020 amendment. Alongside advertisement revenue, the levy was now also charged on the payment collected by e-commerce operators on services and goods to Indian residents, individuals using an IP address within India, and even non-residents in special circumstances. While the scope of the levy was expanded, it was also kept vague and unclear.
The levy was amended in 2021. The definition of ‘e-commerce operators’ was expanded to include a whole host of other services, creating even more confusion in the process.
The amendments to the equalisation levy have been widely criticised for bringing legislative niggles in terms of its applicability to various subsidiaries of MNCs. Companies like Apple have already begun applying the 2 percent levy, in addition to the 18 percent GST, to customers and clients.
However, lack of clarity notwithstanding, Google has gone ahead and decided to charge a 2 percent levy even when neither the buyer nor the seller is from India. Legal experts believe that the move by the tech giant will act as sort of precedent for other companies
"The way the equalisation levy law is worded, almost every transaction that happens on the internet could potentially face the tax. Also, many companies are relooking at their existing structures to see if they can park the India specific activity in a separate domestic entity to avoid complications around equalisation levy," a senior lawyer told The Economic Times.
This is not the only instance where Google and its ilk have passed on the cost of additional levies onto clients and customers. Google had transferred the 2 percent levy charged by the UK as digital tax to clients. Similar actions were taken by the company and other tech entities in Austria and Turkey, where levies for digital revenue were at 5 percent.
While nations introduce taxation on digital revenue that is flowing out of the country, the costs are often borne by customers and clients. More often than not, the companies' bottom lines remain unaffected.
But country-specific digital levies might soon be on the way out. As part of the historic proposal of the Group of Seven (G7) countries to introduce a global minimum corporate tax rate, MNCs would be subject to taxation in countries where they have been accumulating profits even if they had no physical presence. As part of this proposal, unilateral digital levies would be scrapped by the signatories of the proposal, which was signed off by the G20 member states as well.
(Edited by : Shoma Bhattacharjee)
First Published: IST