Taxation issues require good amount to tax management to reduce the incidence of taxation. While tax management is permissible yet tax evasion is a punishable offense in most jurisdictions of the world. An Oxfam report has revealed that as many as top 50 US companies, including the likes of Apple, Walmart, General Electric, Microsoft, Google and Coca-Cola have a whopping $1.4 trillion stashed in offshore tax havens. Indian government is aware of these developments and it has decided to deepen alliance with US to combat tax evasion in both countries.
Tax liability of Google in not new to India. In the past as well, questions about tax liability of Google has been raised by many quarters. Even the European Union wants Google and Bing to be more transparent about advertising in web search results.
According to the recent Indian Budget announcement, any person or entity that makes a payment exceeding Rs 1 lakh in a financial year to a non-resident technology company will now need to withhold 6% tax on the gross amount being paid as an equalisation levy. For instance, if a person spends a sum of Rs. 2 lakh on online advertisement from Google in a single financial year, he has to withhold 6% tax on the gross amount being paid as an equalisation levy.
The said rule is applicable when the payment is made to companies that don’t have a permanent establishment in India. This tax, however, is only applicable when the payment has been made to avail certain B2B services from these technology companies. Specified services include online and digital advertising or any other services for using the digital advertising space. This list, however, may be expanded soon.
Online advertising industry in India is going to flourish at a great speed in the coming years. Firstly, individuals or companies using online advertising platforms of India do not need to withhold 6% tax on the gross amount being paid as an equalisation levy for availing these services in India. Secondly, Google has recently scrapped the page rank criteria and this would provide a level playing field to all websites and blogs that provide qualitative contents but are not very good at page rank. Now online advertisers would rely more upon good placement in search engines and Alexa rank than upon platforms that were manipulated through inflated page rank through negative search engine optimisation (SEO).
Google’s online advertisement revenue is going to be affected by these developments. Further, the tax liability of Google is also going to increase in India if it wishes to generate revenue from India or Indian transactions. Google would also be required to comply with e-commerce laws of India that are still in a development stage. There are also writings on the wall that foreign companies and e-commerce portals would be required to be registered in India. Google needs to adjust its policies for India for optimum results while maintaining its dominance in the cyberspace.