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Google Tax will upset Indian startups more

Govt decides to make equalisation levy applicable from June 1 despite many industrial bodies against it

Policy Pulse
Publish Date: Jun 1 2016 2:35PM | Updated Date: Jun 1 2016 2:35PM

Google Tax will upset Indian startups more

Google tax— the equalisation levy— could well end up increasing compliance costs and accounting hassles for Indian companies , especially startups, at a time when the government is pushing the envelope on ease of doing business in the country. 

 

While the levy is aimed at indirectly taxing internet giants such as Google and Facebook for the money they make from Indian advertisers, as per the rules announced on Monday, the onus of deducting and depositing the levy will lie with the advertiser. 

 

Industry insiders said this will not only increase the accounting hassles for Indian companies but may prove an added burden on them as they will have to pay the levy from their own pockets, though Google has made it clear the internet giant will pay all applicable taxes, according to the Economic Time.

 

Nitin Gupta, CEO at PayU Money , said small companies in particular will find it hard to deal with the added hassles the levy would bring. "Our processes have become more established now, but it will be far worse for a small guy," he said. 

 

Gupta said he believed the big internet platforms will "definitely pass on" the additional cost to companies — making it more expensive for Indian companies to advertise online — since there is not many alternatives available for the advertisers. A Google spokesperson, however, said, "Google has and will continue to pay all applicable taxes and charges as per local laws in any country we operate in." 

 

The government has decided to make equalisation levy applicable from June 1 despite many representations from industry bodies against it. "It will be a situation of double jeopardy for Indian companies. They will not only have to pay an extra cost but also do more compliance," said Subho Ray, president of Internet and Mobile Association of India (IAMAI). He told ET the body is now seeking clarity from the government on who is supposed to finally deposit the levy. 

 

"As a user, it will be very arduous to keep track of all the transactions and file challans of taxes paid," Ray said. IAMAI had earlier said the levy will "cripple the startup companies" and raise tax obligations by almost 50%. 

 

Specified services covered by the levy announced in this year's Budget include online advertising, provision for digital advertising space, and any other service to be notified by the government. While most companies opposed the new levy, Upasana Taku, director of mobile wallet player Mobikwik, said that the levy will bring much-needed clarity regarding payments to international entities such as Google and Facebook. 

 

"Wiring money to the international accounts of these firms requires a lot of paperwork and rises many questions by the auditors regarding tax compliance, etc.," she said, adding the levy will remove some ambiguity in the area. 

 

"The tax makes sense since India is the last big open market for these companies. These behemoths are making tonnes of money working in India, so ideally, they should contribute something by way of taxes to the country," Taku said. 

 

Milan Shah, director for tax at PwC, said it will be taxing on companies to keep track of all transactions, deduct the levy and deposit it to the government. "They will have to keep track of the number of transactions which may create a lot of hassle for the payers," he said. 

 

Tech startups are already paying 14.5% service tax to use these ad platforms which amount to an estimated Rs 906 crore of taxes to the government, IAMAI had argued in its statement. With the implementation of GST (Goods and Services Tax), the tax rate is likely to move to 18%, it said. "Considering the incidence of 6% levy will be passed on to the advertisers by the ad platforms, the total burden to SMEs and tech startups on account of equalisation levy on international advertising platforms would be Rs 429 crore, a massive hike of nearly 50%," the statement had added.