Equalization tax mop-up surges, but it won’t last

BENGALURU/NEW DELHI: India’s collections from the equalization levy, or the so-called Google tax, surged almost 90% in the year ended March to almost ₹4,000 crore, led by improved compliance, economic revival, and the increased scope of the tax.

However, the impressive growth may be short-lived, with a compromise pact that India signed with the US taking effect on April 1.

India will phase out the 2% digital tax on non-resident entities, including Netflix, Facebook, Adobe, Google, and Microsoft as part of the agreement. This will protect India against retaliatory tariffs of up to 25% by the US on a slew of Indian products.

The digital levy saw collections touch ₹3,900 crore in 2021-22 after the last instalment deadline of April 7, against ₹2,057 crore collected a year earlier, data accessed by Mint showed.

India’s information technology hub Bengaluru accounted for ₹1,898 crore, or half of the overall equalization levy mop-up. Hyderabad, which also houses large IT players, accounted for a quarter of collections at ₹953 crore. It was followed by Delhi and Mumbai with collections of ₹706 crore and ₹233 crore, respectively.

Overall direct taxes, which comprise income tax paid by individuals and corporate tax, STT and equalization levy, came in at ₹14.1 lakh crore in 2021-22, 49% higher than the previous year and ₹3.02 lakh crore above the budget estimate. The equalization levy was introduced at 6% in 2016 for digital advertising services, which led to a ₹200 crore collection that year.

The scope was widened in April 2020 to impose a 2% tax on non-resident e-commerce companies and further expanded in the budget 2021-22 through clarifications.

It said that the equalization levy would cover e-commerce supply or service when any activity takes place online, including acceptance of the offer for sale, etc.