Bengaluru/New Delhi India’s collections from the equalization levy, or the so-called Google tax, rose almost 90% in the year ended March. 4,000 crore, led by better compliance, economic revival and increased tax net.
However, the impressive growth could be short-lived, with a settlement agreement that India signed with the US effective April 1.
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India will eliminate 2% digital tax on non-resident entities including Netflix, Facebook, Adobe, Google and Microsoft as part of the agreement. It will protect India against retaliatory tariffs of up to 25% by the US on several Indian products.
Digital Levy Touches Collection 3,900 crore in 2021-22 after the deadline of the last installment of 7 April, against 2,057 crore collected a year ago, shows data accessed by Mint.
India’s information technology hub Bengaluru is responsible for 1,898 crore, or half of the total equalization levy mop-up. Hyderabad, which also houses large IT companies, accounted for a quarter of the total collection 953 crores. Delhi and Mumbai followed with subsequent collections 706 crore and 233 crores respectively.
Overall direct tax, which includes income tax paid by individuals and corporate tax, STT and equalization levy, came in 14.1 trillion in 2021-22, 49% more than the previous year and 3.02 trillion more than the budget estimate. The equalization levy was introduced in 2016 for digital advertising services at 6%, due to a 200 crore collection that year.
The levy of 2% tax on non-resident e-commerce companies was extended in April 2020 and further expanded in Budget 2021-22 through clarifications. It said the equalization levy would cover e-commerce supply or service, when any activity is done online, including acceptance of offer of sale, placing of purchase order, acceptance of purchase order, supply of goods or provision of services, partly or Includes provision of services. Full payment of consideration, etc.
Queries emailed to the CBDT on Tuesday remained unanswered till press time.
The agreement with the US means that from the current fiscal year, New Delhi will not be able to place the entire collection under the same levy, but only as much as agreed under the OECD global tax deal signed in October. Under the arrangement, companies will be able to earn profits in the form of credits for taxes paid in excess of what they paid under the OECD tax agreement signed by 136 countries last year.
Experts said that given the limited scope of the global tax, it may not translate into much revenue for India. The Global Digital Tax deal will only cover tech giants with 20-billion-euro revenue (top 100 companies) and profit margins greater than 10%, while a 2% equalization levy applies to non-resident e-commerce players who have revenue Is. Of 2 crores.
The calculation rules on the global tax deal are still awaited. Therefore, the Central Board of Direct Taxes (CBDT) will only then formulate the formula for computing the tax payable to India.
“While the broad outline of the proposed digital economy tax regime was made public last year, the fine print of the rules and how the proposed Multilateral Convention (MLC) is negotiated and ratified by individual nations remains to be seen. Equalization levies and other unilateral digital tax measures will be withdrawn by countries after the implementation of the new MLCs,” said Suranjali Tandon, an expert on taxation and sustainable finance and an assistant professor at the National Institute of Public Finance and Policy. According to the study conducted by Tandon, the potential gains to India are “modest” and may even hurt India from existing revenues.
E-commerce companies that fall under the equalization levy include Alibaba, Adobe, Uber, Udemy, Zoom, Expedia, Ikea, LinkedIn, Spotify and eBay. The OECD’s two-pillar multilateral solution empowers countries including India to tax digital players including Microsoft, Google, Facebook and Netflix, in addition to setting a ‘global minimum corporation tax’ of 15%. The deal aims to ensure that large multinational digital entities pay higher taxes in the countries where their customers or users are located, regardless of where they operate.