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Budget 2017: Internet companies ask for removal of ‘Google tax’

Chillicious Bureau

India’s internet companies are raising their voice against the equalization levy also termed ‘Google tax’ that was imposed in last budget even as the finance minister is expected to widen the tax net for such a levy.

Internet and Mobile Association of India (IAMAI) which has members such as Microsoft, Google, Amazon, GoDaddy, OLX, Intuit, LinkedIn, Uber and Yahoo has raised concerns with the government on this levy asking for its removal.  

“Equalization Levy does not allow tax credit to both foreign and domestic firms. Thus foreign firms cannot avail tax credits at the country where they pay taxes, and hence will pass on the entire burden on Indian clients,” Internet and Mobile Association of India has submitted in its recommendation to the Finance Ministry.

Equalization levy was imposed last year upon foreign entities that earn revenues from Indian clients vide online advertisements and digital advertising. While most internet companies charge users in rupees some are yet to incorporate India legal entities and charge customers in dollars.

The levy is expected to be widened this budget to include songs, movies and news, a move that may impact companies such as Netflix, Google, Facebook, and others, as per a story earlier reported by Chillicious.  

Indian startups and SMEs currently pay about Rs 906 crore as service tax. “An additional 6% equalization levy would amount to an additional burden of Rs 429 crore (around 50% hike) on such companies which will have debilitating impact on the start-up and SME sector in India by raising cost of operations,” IAMAI said.  

India currently has more than 19,000 technology-enables startups leading in verticals such as e-commerce, digital advertising, digital payment solutions, edu-tech, fintech, etc. Most of them pay for online ad networks for advertising online as well as buy server space from companies based overseas. 

The main objective of the equalization levy was to tax certain forms of transaction that are otherwise outside the tax ambit for the ‘Indian State’ and establish tax neutrality between foreign and domestic firms.

Simply put, a video streaming website registered in India pays a service tax per download. However a similar company registered overseas which earn monies through purchase of downloads, server space, software bypasses this tax.

Internet companies say that a newer levy can be designed with proper consultation of all stakeholders involved at a later stage to ensure parity.

India’s internet economy is expected to rise up to Rs 10 trillion by 2018. India has more than 400 million users making it the second largest web user base after China.