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Introduction of "Google Tax" for Online Ad Services

India has started taxing Indian companies and advertisers who advertise on international companies such as Facebook, Google, Twitter, and so on. Effective from June 1st 2016, an equalization levy, also known as “Google Tax”, of 6 percent for any payment exceeding 1 Lakh INR per year from an India registered company to a foreign company for digital advertisement services has been introduced.

The real reason for the introduction of Google tax is to indirectly tax foreign companies who benefit from Indian advertising companies/advertisers. These companies cannot be taxed directly as they are not registered in the country; on the contrary, if a foreign company is registered in India, it would have to pay the levy. In the absence of an Indian advertiser, users who buy these ads will pay the levy, until the foreign company sets up presence in the country. The move is clearly aimed at obtaining a share of the revenues of Internet giants.

The introduction of Google tax comes with a lot of criticism from experts in the business who feel that the levy will impact small and medium sized businesses in the country the most, because of the already prominent presence of Google and Facebook in the online advertisement space. The burden is in turn passed on to people who use these advertising services. The cost of doing business in India is likely to raise, especially for startups and SMEs, who face the need to use the digital ad space the most. Also, companies that haven’t set online shop in India will rethink and weigh their pros and cons before they do. According to sources, Government also plans to cover more services under the policy, such as, downloading of media/software online.

Any thoughts on how this move will hit the digital advertising industry? Do post your comments in the comments section below.

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