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Online Services May Face Google Tax from June 1st. Here is what you need to know

The digital space has grown rapidly in the past few years and is expected to grow substantially in next few years too. The biggest beneficiaries of this rapid growth in the digital space are companies earning through digital ads like Google,Facebook, Twitter, LinkedIn etc.

Moreover, these companies are located outside India, and hence they are not even subject to any taxes in India. These new business models have created new tax challenges by challenging the current manner of levy of tax which are based on the presence based on permanent establishment rules..

The ‘Google Tax’ or ‘Facebook Tax’ which was first announced in the FY17 budget statement by Finance Minister Arun Jaitley will be levied from June 1. Here’s all you need to know about it — what Google Tax is, who will pay it, and its implications —

What is Google (or Facebook) Tax

The Google Tax was announced to introduce a tax on the income as accrue to a foreign e-commerce company outside of India. Google Tax or ‘equalisation levy’ as it’s called in India, is expected to impact the bottomlines of giants like Google, Facebook, and others.

Why has the tax been introduced?

The tax has been aimed at technology companies that make money via online advertisements. Their revenue is mostly routed to a tax haven country. This tax will help bring the said companies under the tax radar in India. With this new tax, India has also joined the list of other Organisation for Economic Cooperation and Development (OECD) and European countries where a similar tax is already in place.

The government has earned Rs.100 crore in revenue on account of the equalisation levy so far. Companies like Facebook, Yahoo, Twitter and Google earn significant revenues from India from local advertisers. A committee set up by the Central Board of Direct Taxes to examine indirect taxation in India of e-commerce had recommended an equalisation levy of 6-8 per cent on 13 broad services based on the OECD’s Base Erosion and Profit Shifting guidelines.

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