India will eliminate its equalization levy – a charge imposed on digital services provided by non-resident companies, known as the “Google Tax.”
The change was announced in Tuesday’s budget, which saw finance minister Nirmala Sitharaman propose [PDF] the levy “shall no longer be applicable on or after 1st August, 2024.”
“Some stakeholders have raised concerns that the scope of two percent equalization levy is ambiguous and as a result it leads to compliance burden,” explained [PDF] a finance bill-related document released this week.
The “Google Tax” was introduced in 2016 to ensure digital giants – particularly non-resident ones – pay their fair share of taxes on revenues generated from Indian users. Although its nickname references Google, it’s currently paid by companies pulling in over ₹2 crore rupees ($239,000) in revenue per year.
The levy initially imposed a six percent tax on payments for online advertising services, particularly coming from those pulling in over ₹1 lakh ($1200) per year. It later broadened to include a two percent tax on e-commerce operators for goods and services supplied to Indian residents.
Digital services taxes are unpopular in the US – the home of Big Tech. The Biden administration hit back with its own tariff of 25 percent for up to $2 billion of goods on nations that implement digital services taxes – although that tariff was immediately suspended.
India’s government flagged its intention to wind back the levy in 2021 in recognition of efforts at the Organisation for Economic Co-operation and Development (OECD) to have multinational companies pay at least 15 percent of their revenue as tax in each nation where they do business – a move aimed at discouraging companies shifting funds to tax-friendly jurisdictions. Progress towards the 15 percent goal is currently uneven.
Other items listed in India’s new budget are schemes to help small business adopt tech, further government digitalization, more collection of data to inform government decisions and the tools to analyze it, and investment in capacity to produce critical minerals needed for electronics manufacturing.
Digital infrastructure to assist the agricultural sector is also on the agenda, as are programs to boost hiring in the manufacturing sector. ®