Google Tax

Is 'Google Tax' mandatory?

According to a recently published feature in Economic Times, this tax is aimed at e-commerce companies such as Amazon, Google, Twitter or Facebook. They deliver monetized services (currency conversion) and amenities in different countries. However, the proceeds are directed via tax havens, evading government taxes on their income. The government has encountered complications in getting them under the tax net. This is owing to the fact that payments for certain online products and services are often made in Indian currency, but in tax-friendly areas beyond the dominion of Indian establishments.

In the previous year, the Income Tax Appellate Tribunal in Kolkata maintained that pay-outs to conglomerates like Google were not taxed as they could not be taken as permanent institutions or taxable presence of international companies owned and sustained in our country. The purported 'Google Tax' is introduced along with other alterations and financial recommendations stated by the Finance Minister in his budget presentation including the 0.5 percent Krishi Kalyan Cess, 1 percent luxury tax, etc.

The Expected Effect of Google Tax:

Even if a few critics have considered this to be a progressive step for tax companies suspected of circumventing tax in many countries, some others have shown growing concern of its probability to jostle small and medium Indian firms, and particularly start-ups. Considering the government's obvious concern for boosting the possibilities of start-ups, this step is hence deemed to have the opposite effect. The Internet and Mobile Association of India (IAMAI), for example, said that this was an unrealistic move as it would be significantly detrimental to tech-based startups in India.

At a glance it seems infeasible and even arbitrary intended to harm the start-ups as it is mainly targeted towards startups. Since the recommended 'Equalization Tax' is indirect, it comes down on Indian promoters to amass the 6 percent tax and invest it with the government. Therefore, it is felt that the likes of Google are more likely to shoot up their product prices to recover the amount lost in taxation. This indeed poses a sad state for startups.

In addition to general beginner's challenges, their cost of running the company also increases. And there is simply no practical and economic substitutes to their dependency on web resources. More well-known businesses, in contrast, always have the choice of relying on other platforms like print media, TV and online advertising for all kinds of marketing.

Consequences if an organization does not comply to pay Google Tax:

As per a recent report on the topic, if an Indian organization is not able to accrue the 66% Equalization Levy from foreign firms for its payments on services. And the expenses will be estimated as a taxable profit of the company. Even though the government has declared to impose this Equalization Tax, it was actually based on an OECD (Organization for Economic Cooperation & Development) sanction report on levying taxes on digital corporations.