A wide-ranging expansion of Google Tax has been recommended by a Government-appointed panel. It has caused dismay among internet companies which believe that a new levy will raise the cost of a whole range of services provided online.
It has been proposed by an eight-member committee on taxation of e-commerce that services ranging from online advertising and cloud computing to software downloads and web hosting are subjected to an equalisation levy of 6-8 per cent of gross payment if the provider of the service is a foreign entity without a permanent establishment in India.
According to the committee, only payments of over Rs 1 lakh be covered by this levy, which would mean that almost all transactions involving consumers will be exempt.
With this move, the Government is looking forward to tap into a rich vein of revenue and bring to heel global internet companies which it believes are avoiding taxes.
It is expected that the equalisation levy will create incentives for such companies to establish their permanent establishments in India and get taxed only on their net income here.
Digital multinationals, for their part, argue that the Indian establishments that they set up here pay income tax and service tax on digital advertisements, contrary to the underlying rationale of the equalisation levy. The levy, the multinational lobby is arguing, will undermine the Digital India and Startup India programmes by discouraging innovation and forcing startups to cut down on advertising.
Detailed guidelines are not yet out on how the new levy will be implemented but experts hope that the report will serve as a guidance.