Govt Seeks to Scrap 6% Equalisation Levy; Google, Meta Advertisers to Gain

The Indian government has suggested abolition of the 6% Equalisation Levy on digital advertisements from April 1, 2025. The development is likely to bring relief to advertisers on digital media like Google, X (formerly Twitter), and Meta (parent of Facebook and Instagram). The suggestion is included in the 59 amendments to be brought in by Minister of State for Finance, Pankaj Chaudhary, in the Lok Sabha as part of the Finance Bill.

Understanding the Equalisation Levy

The Equalisation Levy, popularly referred to as the digital tax, was originally brought into effect in 2016 with the basic intention of taxing foreign technology firms’ online advertisement revenues earned from business in India. The levy was originally levied at 6% on advertisement revenues generated through online advertisements rendered by non-resident entities. In 2020, the ambit of the levy was also extended to include e-commerce transactions, where there is a 2% levy on revenue received from online goods and services.

Reasons Behind the Move

Experts say that the move to scrap the Equalisation Levy is to ensure a good trade relationship with the United States. The U.S. had complained about the digital tax, saying it was discriminatory against American technology giants like Google, Meta, and Amazon. As a countermeasure, the U.S. had warned that it would impose retaliatory tariffs on Indian products from April 2, 2025. The lifting of the tax is viewed as an effort to defuse trade tensions and create a collaborative economic atmosphere.

Impact on Digital Advertisers and Tech Companies

With the levy proposed to be abolished, companies advertising on the digital platform would face a decrease in the tax they have to pay. Indian companies which advertise on Google Ads, Facebook Ads, or other online advertisement platforms currently have to bear an extra 6% levy, making their overall cost of advertising higher. With this tax cut, advertisers can use more of their budget on actual ad campaigns instead of paying tax.

For multinational technology firms such as Google and Meta, the abolition of the Equalisation Levy removes a major tax burden. These companies have tended to pass on the levy to advertisers, increasing the cost of digital advertising. Now that the tax is removed, the price of advertising on their platforms could be more competitive, and Indian firms could end up spending more on advertising.

Possible Government Revenue Loss

Although the move to abolish the Equalisation Levy is good news for advertisers and tech firms, it could lead to a revenue loss for the government. The levy has been a major source of tax revenues, having generated billions of rupees to the exchequer. Pundits opine that the government might look for alternative sources to make up for this loss, including new tax regimes or altering the current Goods and Services Tax (GST) norms for digital products.

Industry Reactions and Future Implications

The Indian business and digital advertising communities have widely applauded the move. Industry captains opine that lifting the tax will boost investment in digital marketing and online advertising, spurring business expansion. Yet, some economists are of the opinion that the government must make sure that foreign digital platforms pay their due taxes in India using alternative taxation measures.

The step is in line with India’s overall objective of developing a more business-friendly digital economy. By eliminating trade barriers and tax complexities, the government is making it clear that it wants to develop an environment conducive to innovation and economic growth. Secondly, this move could open the door for India to renegotiate its tax policies with other international economies, especially in the context of current negotiations under the Organisation for Economic Co-operation and Development (OECD) on global digital taxation standards.

Conclusion

The move to do away with the 6% Equalisation Levy is a landmark policy change that will benefit advertisers and international technology giants while minimizing trade tensions with America. It also poses challenges, though, especially in the form of government revenue loss. Going forward, India will have to find a balance between economic diplomacy and the need for domestic government revenues so that multinational digital companies pay their share to the nation’s tax coffers. The digital ad industry, on the other hand, will stand to gain from reduced costs, leading to greater investment and innovation in the business.

Arise Times

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