The Indian government has announced plans to discontinue the 6% equalisation levy, also known as the “Google tax,” on digital advertising services provided by foreign tech firms. This change, set to take effect from April 1, 2025, is part of an effort to align India’s taxation policies with global standards and strengthen trade relations.
Understanding the Equalisation Levy
Introduced in 2016, the equalisation levy was imposed on payments made by Indian businesses to international digital platforms for advertising services. The main aim was to ensure that foreign tech companies like Google, Meta, and Amazon, which generate significant revenue in India, contribute to the local tax system even without a physical presence.
Why is India Scrapping the Equalisation Levy?
The decision to remove the tax stems from India’s commitment to improving trade ties with the United States. The U.S. government previously raised concerns that the tax unfairly targeted American tech companies. Eliminating the levy is expected to ease trade relations and support efforts to achieve a $500 billion trade target between the two nations by 2030.
Moreover, India is aligning itself with the OECD’s Inclusive Framework on Base Erosion and Profit Shifting (BEPS), a global initiative designed to ensure fair taxation for multinational corporations. Previously, India had also agreed to phase out the 2% digital services tax on non-resident e-commerce firms as part of this international framework.
Impact on Google, Meta, and Other Digital Platforms
Removing the equalisation levy is expected to reduce tax burdens for global technology firms operating in India. This change may encourage these companies to expand their operations and invest further in the country’s digital ecosystem, fostering innovation and growth.
How Indian Businesses and Advertisers Benefit
For Indian businesses, especially small and medium enterprises (SMEs), this decision could lead to reduced advertising costs on global platforms like Google Ads and Facebook Ads. Lower costs may result in improved return on investment (ROI) for advertisers, allowing them to allocate budgets more efficiently. However, the extent to which these cost savings will be passed down remains uncertain.
Conclusion: What’s Next for India’s Digital Economy?
India’s move to eliminate the 6% equalisation levy reflects its commitment to maintaining a balanced and globally competitive tax system. While this step is expected to boost trade relations and digital investments, ensuring fair tax contributions from multinational tech companies remains a key priority for policymakers.
As the April 2025 implementation date approaches, businesses and advertisers should stay informed about any additional regulatory changes that may impact the digital economy.