‘6% Equal­i­sa­tion Levy will Crip­ple Startup Firms’

Levy will raise cos’ tax obli­ga­tions by al­most 50%

The Economic Times - - Disruption: Startups & Tech - Our Bureau

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.

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