India will stop imposing ‘Google tax’ on Facebook, Netflix, others as part of global deal

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KEY STORY

  • India will do away with the equalisation levy or ‘Google Tax’ imposed on internet companies after representatives of 136 countries agreed to a global tax deal to ensure that digital companies such as Google, Facebook, Netflix, and Microsoft pay a minimum rate of 15% where they operate.
  • India currently gets Rs 4000 crore through the equalisation levy, which will have to be rolled back as part of the new global tax teal finalised by the Organisation for Economic Co-operation and Development (OECD) on Friday. This deal will come into effect in 2023.
  • As part of the proposed deal, OECD has sought for an immediate removal of unilateral digital tax regimes like equalisation levy and a commitment to not introduce such measures in the future.
  • The finance ministers of G20 will meet and discuss the global tax deal on October 13 which will also be attended by FM Nirmala Sitharaman.
  • Currently, digital companies such as those mentioned above do not pay any taxes in India other than 2%-6% equalisation levy imposed on their annual revenue.
  • India has also opposed the move by developed countries for immediate removal of equalisation levy or providing credit to the companies in lieu of the same. Government officials quoted in an Economic Times report said the country will not let go off revenues till the time contours of the deal are finalised. The new global tax regimes is expected to be hammered into implemented by 2023-34.

    What is equalisation levy?

  • Digital companies which do not have a permanent establishment in India are required to pay an equalisation levy on revenues exceeding Rs 2 crore. This is over and above 6% levy on payments for digital advertisement services introduced in 2016.
  • However, there could be more discussions on the proposed global tax structure as the threshold for levying the global tax is still quite high.
  • Vikas Vasal, national leader tax, Grant Thornton Bharat told Economic Times that there are likely to be more discussions over the details of the global tax so that countries such as India are not a disadvantage since the threshold to invoke new tax rules are quite high.

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