
Experts believe this attempt by the govt to give up some autonomous ground on the taxation of the digital economy is to assuage the Trump administration to go easy on the US’s reciprocal tariff plan. Representative image: iStock
6 per cent ‘Google tax’ to be abolished from April 1 amid pressure of US reciprocal tariffs
Equalisation levies promoted as ‘Google Tax’ were designed for the country to receive a ‘fair share’ of taxes from overseas tech companies profiting from the Indian digital economy
The government has proposed to pull back from April 1 a 6 per cent ‘equalisation levy’ (EL) imposed on digital advertisements. This tax has been enforced since June 2016. The equalisation levy, promoted as ‘Google Tax’, was designed for the country to receive a ‘fair share’ of taxes from overseas companies profiting from the Indian digital economy without an equivalent physical presence required.
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This will reduce costs for consumers of digital ads and costs on platforms. These amendments to the Finance Bill, 2025 were introduced by the Minister of State for Finance Pankaj Chaudhary in the Lok Sabha. It follows a similar withdrawal of a substantive 2 per cent levy on non-resident e-commerce operators like offshore technology firms Google, Meta, and Amazon in 2024, and is one of 59 amendments proposed in the Finance Bill, 2025.
According to reports, experts believe that this attempt by the government to give up a bit of the autonomous ground on the taxation of the digital economy, for the time being, is to assuage the Trump administration to go easy on the US’s reciprocal tariff plan, effective from April 2, 2025.
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Soothing US sentiments
The Trump administration earlier withdrew from the Organisation for Economic Co-operation and Development (OECD)-brokered global tax deal, including a two-pillar tax solution in 2023, where large multinational companies must pay a minimum effective rate of tax of 15 per cent in every country they operate. This two-pillar system was aimed to address the taxation issues regarding the thriving global digital economy. This has left the hard-won agreement in 2021 among nearly 140 nations looking uncertain.
The US conducted a year-long investigation from June 2020 into digital services taxes and stated they were against multinational tech companies like Apple, Facebook, Google, and Amazon. They added that the digital services taxes adopted by India, Spain, Turkey, the UK, Italy, and Austria were "inconsistent" with international taxation principles, burdening US companies, according to a report by The Indian Express.
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Accommodative stance
AKM Global Tax Partner Amit Maheshwari said, “Although the 2 per cent levy garnered more criticism from the US, in anticipation of more tariff retaliation by them, the government is trying to show a more accommodative stance, and the removal of 6 per cent levy on online advertising is a step in that direction. However, it remains to be seen if this step, coupled with already ongoing diplomatic measures, would lead to any softening of stance by the US.”
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The amendments also include the pullback of corresponding income tax exemptions under Section 10(50), to maintain tax neutrality. This means that incomes that were previously exempt under the EL regime will now be taxed under regular income tax provisions. These changes, once the bill is passed, would lower taxation costs for digital advertising platforms like Google and Meta, while also lowering tax costs for consumers of these digital ads on these platforms.