Google tax- Good or bad?

Few new rules have been formed. Paying ‘Google tax’ is one of the new rules that came in to effect from June 1. Google tax refers to Indian startups that are highly dependent on online platforms like Google, Facebook, Twitter and LinkedIn for their business.  Indian advertisers will have to withhold 6% tax and deposit it with the Government, which in simple terms is known as ‘Equalisation Levy’. It will be imposed on transaction of more than 1 lakh. Equalisation Levy is dubbed as ‘Google tax’.  In case, the Indian advertisers fail to collect 6% tax, it will be calculated as a taxable profit of the Indian company.

This step is taken to directly tax the global Internet firms, the likes of Google (Alphabet Inc), Yahoo, Facebook and so on that mints money from Indian advertisers but don’t fall under the purview of taxation. The government has faced difficulties in bringing them under the tax net because, even where payment for services may take place in Indian currency, the payments is smartly made in tax-friendly locations outside the jurisdiction of Indian authorities. Products and services can range from online advertisements or online advertising space to design, creation, hosting or maintenance of websites etc.

‘Google tax’ is accompanied by other reforms and budgetary proposals announced by Finance Minister Arun Jaitley in his budget statement including the 0.5 % agricultural cess, 1% luxury tax and a compliance window for black money holders.

In such a situation, it becomes difficult for start-ups to pay tax and survive financially. This tax is discouraging to startups, especially tech-based startups which is totally contradictory to what the government is trying to do through its initiative “Startup India, Standup India”.  However, to cover up the tax, giants like Google and Amazon are likely to increase the price of their products and services. With this, the startups are not benefiting anything.

Takeaways:

• Google tax refers to Indian startups that are highly dependent on online platforms like Google, Facebook, Twitter and LinkedIn for their business, which came into effect from June 1.
• Indian advertisers will have to withhold 6% tax and deposit it with the Government, which in simple terms is known as ‘Equalisation Levy’.
• This step is taken to directly tax the global Internet firms, the likes of Google (Alphabet Inc), Yahoo, Facebook and so on that mints money from Indian advertisers but don’t fall under the purview of taxation.