‘6% Equalisation Levy will Cripple Startup Firms’
Levy will raise cos’ tax obligations by almost 50%
New Delhi: The proposed 6% equalisation levy on the online advertisement revenue of foreign companies introduced in the Finance Bill 2016 will “cripple the startup companies” and raise their tax obligations by almost 50%, the Internet and Mobile Association of India (IAMAI) has said.
The industry body said that the levy will have a severe impact on Indian technology startups and small and medium enterprises (SMEs), which it said are primary users of digital ad platforms such as Google and Facebook. An eight-member committee on taxation of ecommerce had in a report, released last month, proposed that services ranging from online advertising and cloud computing to software downloads and web hosting be subject to an “equalisation levy” of 6-8% of gross payment if the provider of the service is a foreign entity without a “permanent establishment” in India.
“The tech startups are already paying 14.5% service tax to use these ad platforms which amounts to an estimated Rs 906 crore of taxes to the government,” the association said in a statement on Thursday.
The levy was initially understood to be a way for the government to get foreign internet companies to pay taxes. However, because of the nature of the levy, the companies will not be eligible for credits in their home countries, which means the levy will have to be paid by users of their advertising platforms, such as startups and SMEs. With the implementation of GST (Goods and Services Tax), the tax rate is likely to move to 18%, bringing more taxes to the government from this segment, the association said. “Considering the incidence of 6% levy will be passed on to the advertisers by the ad platforms, the total burden to SMEs and tech startups on account of equalisation levy on international advertising platforms would be .₹ 429 crore, a massive hike of nearly 50%,” the statement said.
The industry body, which includes members such as Google, Microsoft, LinkedIn, Facebook and Twitter, said it was opposed to dif- ferential pricing, as it violates net neutrality.
ET had earlier reported that while the intention of the government was to tax online companies, the levy could actually end up being a cost to small Indian businesses which advertise on these platforms.
“Prima facie it looks impractical and unreasonable, that to collect additional revenues of .₹ 400 crore, the government is ready to hurt the startups. This is actually a tax on Indian startups,” IAMAI president Subho Ray said.
The association took a strong stand against the implementation of the levy. “India will stand out like a sore thumb if the government doesn’t withdraw this proposal,” Ray said.
The issue, for long, has been that multinational companies such as Google, Facebook and Twitter — not to be confused with their Indian arms — do not have “permanent establishments” in India which would make them liable to pay tax.