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Govt to bring foreign online ad, marketing firms in tax net

This applies to online advertisements and digital media services rendered by a non-resident company without a permanent establishment in the country

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Online Advertising

Raghu Krishnan & Sudipto Dey  |  Bengaluru/New Delhi 

Govt to bring foreign online ad, marketing firms in tax net

In an effort to bring the digital economy under the tax net, the government has proposed to impose an equalisation levy cess of six per cent in business-to-business digital transactions involving global advertising and marketing doing business out of India.

This applies to online advertisements and digital media services rendered by a non-resident company without a permanent establishment in the country..

Read our full coverage on Union Budget 2016 "The move will end the free run of global and digital marketing by bringing them under the provisions of the Income Tax Act," noted Pallav Pradyumm Narang, a chartered accountant tracking the business. Under the existing provisions, and digital marketing services rendered from outside India did not fall under any taxable head, he added.

The levy will come into effect for transactions worth over Rs 1 lakh annually. While the levy is currently limited to digital advertising and marketing companies, Rajesh Gandhi, partner, Delloite Haskins and Sells, pointed out that the government had the option to add other services. This move is in line with Base Erosion and Profit Shifting (BEPS) action plan by the Organisation for Economic Co-operation and Development (OECD) to address tax challenges of the digital economy. As part of G20, India has been active in preparing rules in association with OECD officials.

The OECD has recommended imposition of a withholding tax on certain payments for digital goods or services provided by a foreign e-commerce provider, or imposition of a equalisation levy on consideration for certain digital transactions. The advertising industry has not taken kindly to this move. According to Manish Vij, chief executive, SVG Media that runs Tyroo and Komli Media, one of the largest advertising technology platforms in the country: "It is a very short-sighted view on and will not help the industry."

Nearly half of the Rs 5,000 crore India's digital advertising spending goes to foreign publishers like Facebook, Google, LinkedIn and Twitter. However the tax realisation for the government from this move was estimated to be around Rs 180 crore, said Vij. "The tax would have made more sense when the digital advertising industry reached a scale of around $2 to $ 3 billion," said Vij.

Many in the industry feel that the tax would have made more sense when the digital advertising industry reached a scale of around $2-3 billion.

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First Published: Wed, March 02 2016. 00:30 IST
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