All you need to know about Google Tax

You might have already heard about the new tax in town called the ‘Google Tax’. It is also mentioned as ‘Amazon Tax’ or the ‘Facebook Tax’ – in the UK and Spain. I don’t know much about this tax but I found some interesting update about the tax published in DnaIndia.com. For our readers, we are re-posting the same article here. Let’s take a look.

Finance Minister Arun Jaitley had spoken about introducing a tax on the income as accrue to a foreign e-commerce company outside of India. Google Tax or ‘equalisation levy’ as it’s called in India, is expected to impact the bottomlines of giants like Google, Facebook, and others.

So what is this Google Tax (or Amazon or Facebook Tax)?

According to the Budget announcement, any person or entity that makes a payment exceeding Rs 1 lakh in a financial year to a non-resident technology company will now need to withhold 6% tax on the gross amount being paid as an equalisation levy. The said rule is applicable when the payment is made to companies that don’t have a permanent establishment in India. This tax, however, is only applicable when the payment has been made to avail certain B2B services from these technology companies.

What are the services that fall under this rule?

Why has the tax been introduced?

The tax has been aimed at technology companies that make money via online advertisements. Their revenue is mostly routed to a tax haven country. This tax will help bring the said companies under the tax radar in India. With this new tax, India has also joined the list of other Organisation for Economic Cooperation and Development (OECD) and European countries where a similar tax is already in place.

Who will it impact?

If you’re a business owner, especially running a small business or an online start up, and you use Facebook or Google for advertising and marketing promotions, then the Google Tax will impact you.

Let’s take an example: assume that A runs a company and is liable to pay Rs 5 lakh to a foreign company to advertise with them.

With the new tax in place, A will have to withhold 6% of the amount – i.e. Rs 30,000 – and pay the balance Rs 4.7 lakh to the foreign company for its services. The withheld amount will be paid to the government.

It remains to be seen whether the foreign company will stand to bear the loss by simply accepting lower margins because of the new tax or will they hike the advertising rate taking the new tax into account?

If the latter happens, which is most likely, the Indian business owner, in this case, A, will bear the loss.

A’s overall billing will likely shoot up by about 6%, which means he will have to pay Rs 5 lakh plus taxes. So his total payout may go up to Rs 5.3 lakh.

What if an Indian business owner or company fails to deduct this tax?

The Budget has proposed that any Indian business owner or company that fails to deduct this tax or equalisation levy or doesn’t deposit it with the government, then the company will not be allowed to consider the expenses in calculating taxable profits. This will increase the taxable income, thereby hiking the company’s tax liability.

Note:

The above information is taken from dnaindia.com. All credit about the article goes to the author who is a Chartered Accountant and the Chief Gardener & Founder Director of Money Plant Consulting, a leading Tax & Investment Planning Advisory Service Provider.