India becomes first nation to implement Google tax
India has officially become the first country today to adopt the equalization levy, dubbed as Google Tax.
Google tax or Equalization levy or Service tax is imposed on transactions dealing with profits or royalties, which otherwise have been redirected to other jurisdictions with cheaper or zero rates. It will be applicable on any income arising from the transaction in India in online and digital advertising or any other services for using the digital advertising space.
Online business in India is rapidly expanding segment. The telecommunication networks and the internet have now become a significant segment of the economy around the world.
In this, the Indian resident while making payment to the foreign owner will pay 6% of the gross amount charged, to the government.
Equalization levy, comprising a section of the Finance Bill will ensure that double taxation avoidance (DTA) agreements with other countries are not violated.
Several non-resident technology businesses such as Google and Facebook evade paying taxes in the source jurisdictions from where they receive advertisement revenues, This way, their incomes are routed through tax havens to avoid paying taxes.
Because of their capacity to carry business without needing a permanent endowment in the country of source. It has lead to their unfair advantage over domestic competitors. As a result, domestic enterprises are charged at the domestic tax rates whereas MNCs may not be taxable at all.
The list of services may expand in near future involving other goods and services consumed online.