Budget 2019-20: The government collected over Rs 550 crore from the equalisation levy in FY18, nearly thrice the amount of Rs 200 crore collected in 2016-17.
Budget 2019 India: The ambit of the equalisation levy may be expanded, making more services liable to pay what is popularly called the Google tax. Among the new services that may be taxed include streaming services, the hosting or maintenance of a website, online computing, blogs, online content and a facility or service for online sale of goods or services, tax experts said.
The levy is currently applicable only to business-to-business (B2B) transactions with an aggregate consideration of over Rs 1 lakh in a financial year. However, business-to-consumer (B2C) transactions could also be brought into the fold of the levy, experts said and pointed out that it would be hard to implement this. The government collected over Rs 550 crore from the equalisation levy in FY18, nearly thrice the amount of Rs 200 crore collected in 2016-17. The collections in FY19 are estimated at over Rs 800 crore.
The government will not want to be seen as acting too unilaterally at a time when the Organisation for Economic Co-operation and Development (OECD) is yet to reach a consensus on Action 1 under the base erosion and profit shifting (BEPS) action plan which deals with taxation in the digital economy. Tax experts said for a B2C transaction — online purchases made by customers on foreign websites — the government may introduce a TDS (tax deducted at source). The intermediary could be the bank or the e-commerce operator routing the payment.
The government currently charges an equalisation levy of 6% on “online advertisement and any provision for digital advertising space or any other facility or service for the purpose of online advertisement”. The levy is imposed on the income that foreign digital advertising companies without a permanent establishment in India earn from within the country. It was introduced by the Finance Act 2016 and it came into effect on June 1 of that year.
The government defines equalisation levy as “the tax leviable on consideration received or receivable for any specified service under the provisions of this Chapter”. To put it simply, if a company resident in India advertises on foreign platforms like Facebook or Google and the cost of advertising is more than Rs 1 lakh in a single year, the resident company has to withhold the equalisation levy and pay it to the government.
Rohinton Sidhwa, partner, Deloitte India, said the purpose of the levy was to tax the India profits accruing from a digital enterprise’s operations in the source country. “The flaw with the equalisation levy is that it can be shifted from the taxpayer to the tax recipient and it fails the purpose of being a tax on profits. Because the burden of the tax can be shifted, extending the coverage will not yield any significant result and will end up in a price increase for the services — for Indian companies as the tax burden gets shifted,” Sidhwa said. Digital advertising spends grew 34% to Rs 15,400 crore in 2018, contributing around 21% of the total ad market, according to an EY-Ficci report.