The “Google tax,” a 6% equalization fee on internet advertising services offered by international tech firms like Google and Meta, is probably going to be eliminated in India. According to news agency Reuters, the tax will be eliminated on April 1, 2025, as part of changes to the Finance Bill.
This action coincides with initiatives to strengthen economic ties with the US, which had earlier denounced the tax and threatened to impose retaliation duties. It is anticipated that the tax’s repeal will help India’s digital economy, advertising, and IT enterprises.
WHAT IS THE GOOGLE TAX?
In 2016, the Equalization Levy was implemented to tax payments made by Indian enterprises to foreign firms for the provision of digital advertising services.
Its goal was to guarantee that multinational internet companies who do not have a physical presence in India but generate substantial revenue from Indian consumers pay taxes to the Indian government.
The levy, which was first set at 6% for online advertising services, was subsequently increased in 2020 to 2% for all Indian e-commerce businesses with yearly sales over Rs 2 crore.
After a deal between the US and India, the 2% charge was removed last year. The administration now intends to eliminate the initial 6% tax as well.
WHY IS THE GOVERNMENT REMOVING IT?
In an effort to prevent trade disputes, India and the US have decided to abolish the tariff. In reaction to the equalization levy, the US has previously threatened to apply duties of up to 25% on Indian goods including jewelry, shrimp, and basmati rice.
The tax elimination, according to experts, would help strengthen ties between the US and India and avert further trade problems. In an effort to defuse tensions with the US, several nations, notably the UK, are also thinking about eliminating comparable digital levies.
“Removal of the equalisation levy is a smart move by the government, as collections weren’t very high, and it was a concern for the US administration,” Sudhir Kapadia, senior advisor at EY told Media.
HOW WILL TECH GIANTS BENEFIT?
The elimination of the Google tax is anticipated to benefit multinational tech companies doing business in India in a number of ways:
Lower advertising Costs – The removal of the 6% tax would make it more affordable for Indian companies to advertise on websites like Google and Meta, which will stimulate more investment on digital advertising.
Higher profit margins – The fee will no longer need to be included into the price of IT firms, increasing their revenue.
More advertisers on digital platforms – Reduced expenses may draw in more advertisers, increasing digital platforms’ earnings.
Better trade relations – A stable trading climate for multinational corporations may be ensured by India’s action, which might stop the US from enacting retaliatory duties.
IMPACT ON INDIA’S DIGITAL ECONOMY
More foreign investment in India’s digital industry is anticipated as a result of the tax’s removal. Businesses that depend on digital marketing may gain from increased expenditure on online platforms as a result of cheaper advertising expenses.
In addition, the administration has suggested replacing the equalization levy with the removal of other tax breaks that are accessible to international IT firms. This implies that businesses may still be subject to other forms of taxation even though the levy will no longer be used.
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