India's Digital Tax Revenues


Credit: Dr2 Consultants Copenhagen

OVERVIEW


• A Digital Tax is a tax on selected gross revenue streams of large digital companies

• India introduced digital taxes (equalization levy) in 2016 with a 6% tax on companies such as Google who made money from Indian advertisers

• In 2020, it was followed up by 2% tax on e commerce companies

• The purpose of the tax is to put the foreign and multinational companies into the taxman's bracket

IMPACTS OF NEW TAX SYSTEM


• This tax system leveled the playing field for Indian and foreign companies

• Tax revenues from the digital taxes are:
FY20-1,136 crores
FY21 2,057 crores
FY22 3,900 crores

• The government saw a almost of 300% increase in digital taxes between 2020 to 2022

• Bengaluru alone accounts for 1,898 crore, or half of the overall equalization levy collected

TAX DISPUTE


• Over the years, the countries are arbitrarily deciding their own tax rates like Kenya 1.5%, European countries are charging upto 5%

• The major impact of these taxes were on the US as American multinational corporations had to bear most of the tax burden like Google, Amazon, Meta, Netflix

• In response to this, the US imposed the retaliatory tariffs on these countries up to 25% on certain products in India

OECD SETTLEMENT


• Organization for Economic Co-operation and Development (OECD) came up with two pillars to fix the dispute

• Multinational enterprises with global sales of over $20 billion and profitability of 10% will have to pay taxes irrespective of their home market

• A minimum of 15% tax on income of every company will be levied irrespective of where they set their home base

• This pact was made with India and 135 other countries and looks all set to be implemented by 2023