Google, FB may have to cough up tax on revenue earned in India

The government is all set to tax social media giants like Google and Facebook, whose business thrives on their considerable Indian user base.  The government has now decided to levy a 6 per cent ‘equalisation’ tax on income earned by foreign social sites through advertising, e-commerce facilities, downloading of contents, etc. This move is being considered as a big step towards safeguarding commercial activities undertaken by domestic websites.

According to officials, the decision was taken on the recommendations of Central Board of Direct Taxes (CBDT) to bring foreign companies under the tax bracket. Once under it, the foreign-based company would have to pay Rs 6,000 tax on its earning of Rs 1 lakh and above, which would be different from the income tax.

Hailing the move, economists have dubbed it as a progressive step initiated to strengthen Indian economy. “This should have been done soon after social media giants had entered into India to tap the huge user base market, but nonetheless the NDA government took the decision at the right time. Now, social media giants would have to cough up a part of their revenues generated within India,” said Jagdish Shettigar, former economic adviser to Prime Minister Atal Bihari Vajpayee.

“Social media companies are expanding their base in India as they see a great business potential here. With their revenues increasing manifold in the recent past, this 6 per cent ‘equalisation’ tax will not pinch them. There are chances that social media giants like Facebook, Google, Twitter, etc may try negotiating by shifting the tax burden on consumers, but the probability of it is very less as their business model is user-based and at present India is best country for them expand their businesses,” said Shettigar, an Economics professor at BIMTEC.

Notably, Google earned Rs 4,108 crore and Facebook Rs 123.5 crore as revenue from India in 2014-15. The suggestions made by CBDT have been incorporated in the Finance Bill-2016, which has been passed by the Lok Sabha, and would be introduced in the Rajya Sabha on Monday for final clearance.

 In its report submitted to Finance Ministry in February, the CBDT had proposed that in case the service provider is a foreign entity without a permanent establishment in India, an “equalisation levy” of 6-8 per cent of the gross payment, shall be levied on services ranging from online advertising and cloud computing to software download and web hosting.

According to economists, this move will help in boosting the domestic digital business, as foreign based social sites, would not be able to offer extra discounts after imposition of ‘equalisation’ tax on them. In this way, it will provide an opportunity for domestic websites to have a fair competition with those operating from foreign destinations.