Google tax collection nearly doubles in FY21; Bengaluru tops the list

Equalisation levy or the so-called Google tax collection nearly doubled in FY21 compared to the previous fiscal year as the government expa­nded its scope to cover non-resident e-commerce operators.

This comes in the backdrop of the US proposing retaliatory tariffs of up to 25 per cent against New Delhi on a slew of products, including shrimps, basmati rice and gold, among others.

The digital levy, aimed to tax non-resident e-commerce operators, saw collections tou­ch Rs 2,057 crore in FY21 after the last installment dead­line of April 7, against Rs 1,136 crore collected in the same period last year, according to government sources. This suggests a growth of 81 per cent on a year-on-year (YoY) basis in Google tax collections in FY21.

India’s information technology hub Bengaluru accou­nted for half of the overall equalisation levy mop up at Rs 1,020 crore. Hyderabad, whi­ch houses large IT players, accounted for a quarter of the collections at Rs 538 crore. It was followed by Delhi and Mum­bai with Rs 323 crore and Rs 134 crore collections, respectively.

“Equalisation levy collections increase is on expected lines. But the idea here is not collections, but bringing foreign entities under the tax net in India. They make large earnings from users in India but do not have a physical presence here. The levy is only an interim measure. We are awaiting a multilateral deal at the OECD (Organ­isation for Economic Co-operation and Development) on digital taxes,” said a government official.

While overall net direct tax collections were down 10 per cent in FY21, the pandemic year, Bengaluru, India’s IT hub, posted a 7.3 per cent growth, latest data showed.

The levy applied only to digital advertising services till 2019-20 at the rate of 6 per cent. However, the government, in April last year, wid­ened the scope to impose a 2 per cent tax on non-resident e-commerce players with a turnover of Rs 2 crore. It covers players, including Facebook, Google, Amazon, Microsoft, Adobe, Uber, Ud­emy, Zoo­m.us, Expedia, Ali­baba, Ikea, LinkedIn, Spotify and eBay.

Rajat Mohan, partner, AMRG Associates, said, “Bes­ides widening scope of the levy, the pandemic and social distancing norms last year led to a surge in their business, resulting in higher taxes. All the digital businesses are set up in metro cities. So, the tax mop up from these cities is bound to increase.”

Meanwhile, the US — in its Section 301 report — held that India’s digital tax of 2 per cent on technology majors is unreasonable, burdensome, and discriminatory against Amazon, Google and Face­book. It has invited comments on the proposal on retaliatory tariffs against India by April 30. The public hearing is scheduled for May 10. In fact, India further expanded its scope by way of clarifications in the Finance Act 2021-22. It will cover e-commerce supply or service when any activity takes place online.

Sandeep Jhunjhunwala, partner, Nangia Andersen LLP, said, “…the levy has raised multiple questions and ambiguities with regard to its boundless scope and applicability. The government has provided certain clarifications recently, but the scope of the levy has the potential to cover any transaction conducted through a digital or online platform. The Rs 2,058 crore of digital taxes collected during FY21 vis-à-vis Rs 1,136 crore collected during FY20 reflect a marked growth for an economy ridden by the pandemic.”

Jhunjhunwala added that multinationals were increasingly reviewing their business activities in India. and FY22 would be a crucial year for observing the collections from the equalisation levy, “as the government is determined on tapping the colossal digital markets.” Besides, the levy would apply to gross consideration and not just the commission earned, leading to an outcry from industry.