'Google Tax': What is it and why is India scrapping it starting April 1?

Google Tax

India is set to remove the 6% equalisation levy, commonly referred to as the 'Google tax,' on digital advertising services provided by foreign technology firms like Google and Meta. The decision, part of the amendments to the Finance Bill, will take effect from April 1, 2025.

Why was Google tax introduced?
The equalisation levy was introduced in 2016 to ensure that foreign digital service providers earning revenue from the Indian market contributed to the exchequer despite not having a physical presence in the country. It was aimed at creating a level playing field between Indian businesses, which were subject to local taxation, and global digital firms operating through online platforms.

Why is India scrapping the tax?
The removal of the tax is seen as a step to ease trade tensions with the United States, which had objected to the levy, calling it discriminatory against American firms. The tax required foreign companies to withhold and remit a 6% charge on revenues earned from online advertising services to Indian businesses, increasing their compliance burden.
Experts suggest that the levy led to increased digital marketing costs for Indian enterprises as companies like Google and Meta passed the tax burden onto advertisers. The decision to remove the tax aligns with India's broader efforts to facilitate smoother trade relations with the US, particularly after recent tariff-related concerns raised by President Donald Trump.

How will businesses be affected?
The removal of the equalisation levy is expected to benefit both foreign digital service providers and Indian businesses.
Tech giants' gains: Companies like Google, Meta, and Amazon will see reduced tax compliance requirements and improved profit margins.

Lower marketing costs: Indian advertisers using global platforms for digital marketing may see a decrease in costs, potentially enabling better outreach and engagement.

Economic impact: The move is expected to encourage digital advertising investments and enhance India's digital economy by reducing the financial burden on businesses.

The decision also reflects India's shift in its digital taxation approach, moving toward a more globally accepted framework. The country had earlier removed a 2% levy on non-resident e-commerce firms providing online services, further signalling its intention to streamline digital taxation policies.