Google tax mop-up slips for first time to Rs 3,864 crore since inception

Uncertainty over OECD's global tax deal affects collection in FY23

India’s collection from the equalisation levy, commonly known as Google tax, witnessed a decline in the fiscal year 2022-23 to Rs 3,864 crore, against Rs 3,900 crore a year ago, because of a lower quantum of chargeable payments made by internet companies amid uncertainty over the proposed global tax deal. This is for the first time that the equalisation tax collection saw a decline since its inception in 2016-17.

The stagnation in digital tax revenue could be attributed to multiple factors, including internet companies awaiting clarity on the equalisation levy, especially after India’s deal with the US. Another reason could be that some of these firms might have found ways to avoid the tax, according to tax officials.

In FY22, the digital levy saw collection touch Rs 3,900 crore versus Rs 2,057 crore collected the previous fiscal year, according to the data seen by Business Standard. IT hub Bengaluru accounted for half of the overall mop-up in FY23, followed by Delhi, Hyderabad, and Mumbai. The equalization levy was introduced at 6 per cent in FY17 for digital advertising services, which led to a Rs 200 crore collection that year. The scope of the tax was widened in 2020: A 2 per cent levy was imposed on internet giants' digital advertising revenues from India to include any purchase by an Indian or India-based entity through an overseas e-commerce platform.  This 2 per cent is also applicable on all online sales of goods or services, any purchase that has been made online, online payments and even an offer that's been accepted online.

The US, in 2021, proposed retaliatory action; the same year, the two nations reached an agreement to settle differences relating to the 2 per cent levy imposed on e-commerce operators.

Under the agreement, India will continue to impose the levy until March 31, 2024, or until the implementation of Pillar 1 of the OECD agreement on taxing multinationals and cross-border digital transactions. Once the OECD agreement rolls out, the 2 per cent equalisation tax will have to be withdrawn. This applies to other countries that have imposed a similar tax, as well. According to the terms agreed upon by five countries in the October 2021 agreement, India will have to provide credit if collected tax over this period is more that it gets when the OECD regime rolls out for a similar period. Alibaba, Uber, Spotify, and LinkedIn are among the e-commerce platforms which are under the ambit of the equalisation levy.

Amit Maheshwari, Tax Partner, AKM Global, a tax and consulting firm, said: “The decline in the collection may be due to the funding winter experienced by tech start-ups leading to cost cuts, This has resulted in reduced investments. India has to roll back  equalisation levy  2.0 any way after Pillar 1. It is to be kept in mind that Pillar 1 applies only to companies with a global turnover above ^20 billion, which is precisely top 100 companies.”  

The OECD’s two-pillar multilateral solution gives right to countries, including India, to tax digital giants, such as Microsoft, Google, Amazon, and Netflix, setting a global minimum corporation tax of 15 per cent. The idea is to ensure these firms pay taxes in countries where they have a user base, irrespective of where they operate. 

However, finding a middle ground at OECD has been challenging and the process has gone through many alterations. Also, it is more of a political matter as it involves big technology firms which are tax residents of developed nations like the US and any changes and redesigning of law will allow developing nations like India to seek tax from these firms.