Have you ever heard about the “Google Tax” or Google, Amazon or Facebook Tax”. As per the recent Union Budget, our finance minister Mr Arun Jaitley had talked about introducing a tax on an income as accrued to a foreign e-commerce company out of India.
What is Google, Amazon or Facebook Tax?
As per the recent announcement, a person who makes a payment to a non-resident technology company need to withhold 6% Tax on the gross amount being paid as an equalization levy (More on this with an example is given in the further section of this post).
The said rule applies to a company who does not have a permanent establishment in India and only in case wherein the total payment being made exceeds Rs. 1 lakh for a particular financial year for availing certain specified services.
What are the services which come under this rule?
Specified services include the online advertisement or any other services for using digital advertising space and this list may be expanded soon. On an e-commerce portal, there are many services which are provided and given a fact that the proposed section is wide enough to introduce many more services under its ambit.
What is the reason behind introducing this tax?
This tax is popularly known as Google Tax or ‘Google, Amazon and Facebook tax’ in UK & Spain aiming at levying the tax on the technology companies which makes money via online advertisements and their revenue is mostly routed to a tax haven country. So, in order to bring those companies under tax radar in India, this tax is introduced here. With the introduction of this tax; India has also joined the list of other OECD and European countries where the similar tax has already been introduced.
How Google Tax will impact you or your Startup?
At the first glance, you may think that it may not have any impact on you but if you are one of those business owners mainly running any SMEs or an online start-up and wanting to use Facebook or Google for your advertising & marketing promotions then you will be impacted with this Google tax. Let us take an example; assume that you run a company and want to pay Rs. 5 lakhs to a foreign company for using their online advertisements services like the way most of the people use Google ads or Facebook ads.
Now with the new tax in place, you need to withhold 6% of Rs. 5 lakh i.e. Rs. 30,000/- and need to pay the balance of Rs. 4,70,000/- only. Google tax of Rs. 30,000/- needs to be paid to the government.
Now this needs to be seen that whether foreign company will bear the loss or will they increase their price by grossing up this tax amount, if that is going to happen then the loss will be borne by the Indian business owner.
It means that his overall billing will shoot up by an additional 6% Google tax and in turn he need to pay Rs. 5 lakh plus taxes i.e. 6% tax (so in all Rs. 5,30,000/-). So it remains to be seen that who will bear the actual loss, a foreign online advertising company by simply accepting lower margins or they may simply add a higher advertising rate to takes into account additional google tax?
What in case Indian business owner/company fails to deduct this levy/tax?
The Budget had proposed that any Indian business owner or company who do not deduct this google tax or equalisation levy and do not deposit with the government then the said expenses will be disallowed in calculating their taxable profits. It means that their taxable income will go up and thereby tax liability.
Note: It will not harm your Adsense earning. Because this tax applies to advertisers not publishers.
1. If you Publish ads on your site with adsense, this tax doesn’t apply because you are a publisher.
2. If you are an advertiser and wants to publish your company’s advertisement then this tax will be applicable to you. This is like TDS (Tax Deducted at source) and not an additional levy on you, it means that you have to deduct 6% from the total payment you will be making to Google or Facebook towards their fees. You need to pay 94% of the total payable bill to Google and remaining 6% needs to be deposited with the government.
Feel free to let me know if you have any question about Google tax? In the coming days I will share more insight on the same. If you need help with Tax calculation for your online income, kindly drop an email to firstname.lastname@example.org with Subject “Money Plan Consulting”.