India has rapidly become something of a worldwide powerhouse for growth in the mobile industries. The country is benefiting from a rapid roll out of 3G and 4G LTE network technologies and of course, accompanying smartphones and tablets for customers to use the service with. India’s government has also introduced an important scheme designed to encourage investment into the country, “Make In India,” which benefits businesses to build factories and employ local workers in India. India is also a technological hotbed for businesses climbing the global ladders of success: there is much innovation happening and as a consequence, Indian companies are advertising their products and services on a global scale using internationally recognised advertising platforms – chiefly Facebook, Google Twitter and Yahoo. However, these large, digital and international companies operate in a different way to the more traditional businesses and – depending on one’s perspective – are very clever at avoiding large tax bills through clever accounting and working financial deals with governments around the world. Some countries are taking a harder line than others by introducing a special “catch” tax designed to generate income from these businesses’ relevant operations. India is the latest country to introduce a so-called “Google Tax.”
Earlier this week, the Indian Government have introduced a new “equalization levy” designed to tax the payments made by Indian businesses to online advertising for international companies, including Google, Facebook, Twitter and Yahoo. This new levy, known colloquially as the “Google Tax,” is the Indian way of ensuring it gets its share of the international revenues generated by non-local companies. This is because Indian advertisers cannot be taxed under the current Indian tax regime as they are not registered in the country and amounts to 6% for payments exceeding Rs 1,00,000 (approximately £1,100 or $1,500) in a given financial year for services including digital advertising. The tax will be paid by international businesses with a registered Indian address, but for those businesses without this option the 6% will need to be paid by the advertisers.
Would this 6% tax be met by the advertisers? According to industry experts: no it won’t (at least not at first). It’s expected that the larger companies such as Facebook and Google will simply pass on the 6% charge to advertisers. The move could increase the cost of advertising on a globally recognised business for Indian companies by 6%. The Internet and Mobile Association of India criticised the move explaining that “the levy will severely raise the cost of doing business of Indian tech startups and small and medium enterprises that are the primary users of digital ad platform.” The Internet and Mobile Association of India calculates that the 6% tax could equate to an additional Rs 4.3 billion, approximately £45 billion or $64 billion, a hike of almost 50%. It did not detail the calculation, however. Another worry is that this 6% tax rate could be increased at some point in the future.