New Global Tax Trends and Implications

India to Scrap the 6% Equalisation Levy

In a major policy shift, the Indian government has proposed to abolish the 6% ‘Google tax’ on digital advertisements as part of the amendments to the Finance Bill, 2025. The decision comes amid mounting pressure from the United States to ease trade tensions. The equalisation levy (EL), introduced in 2016, aimed to tax payments made by Indian businesses to offshore tech giants such as Google, Meta, and Amazon. However, with the new US administration seeking tariff relaxations, India is considering removing this tax starting April 1, 2025.

Background: What Is the Equalisation Levy?

The equalisation levy, popularly known as the ‘Google tax’, was introduced by India in 2016 to tax foreign digital service providers. It initially imposed a 6% tax on online advertising revenues earned by non-resident companies. In 2020, India extended the levy to 2% on e-commerce transactions, targeting offshore tech giants generating significant revenues from Indian users.

The move aimed to level the playing field for domestic firms and generate tax revenue from large foreign corporations. However, this tax also became a major contentious point in US-India trade relations, with the US viewing it as discriminatory against American companies.

Why Is the Indian Government Abolishing the Levy?

The proposal to abolish the 6% equalisation levy comes as part of India’s efforts to comply with the global tax consensus. Several factors have influenced this decision:

1. US Tariff Pressure

The US government has consistently criticized India’s equalisation levy, calling it unfair and discriminatory.

With the new US administration pushing for tariff relaxations and fairer trade terms, India is signaling its willingness to ease some tax burdens.

2. Global Tax Reforms

The move aligns with the OECD’s global tax framework, which aims to implement a 15% minimum corporate tax and reduce unilateral digital taxes.

India’s compliance with the two-pillar global tax reform could attract more foreign investments.

3. Boosting Trade Relations

By scrapping the equalisation levy, India hopes to improve trade relations with the US.

This could lead to reduced tariffs on Indian exports and foster a more favorable trade environment.

Impact on Tech Giants and Indian Businesses

The abolition of the 6% Google tax will have a significant impact on both foreign tech giants and domestic businesses.

For Tech Companies

Google, Meta, Amazon, and Microsoft will benefit from reduced tax liabilities.

It will encourage more tech investments and expansion in India.

Companies will have higher ad revenue margins, which may lower the cost of advertising services.

For Indian Businesses

Indian businesses relying on online ads may see cost reductions.

However, it could also mean a lower tax base for the Indian government, reducing its digital tax revenue.

The government may introduce alternate tax measures to compensate for the revenue loss.

Expert Reactions and Analysis

Finance experts and trade analysts view this decision as a strategic move by India to strengthen its bilateral trade relations with the US.

Pankaj Chaudhary, Minister of State for Finance, highlighted that the 35 amendments to the Finance Bill, 2025, are aimed at creating a more favorable business environment.

Industry experts believe the removal of the equalisation levy will boost investor confidence and make India a more attractive destination for foreign direct investment (FDI).

Global Tax Trends and Implications

India’s decision comes in the wake of several nations re-evaluating their digital tax policies due to the OECD’s global tax agreement.

France, Italy, and Spain have already agreed to withdraw their digital service taxes as part of the global consensus.

The abolition of the equalisation levy aligns India with this international tax framework, enhancing its credibility.

A Strategic Tax Reform

The abolition of the 6% Google tax in India marks a significant policy shift, driven by US pressure and the need for global tax compliance. While it benefits tech giants and may boost foreign investments, the government must find alternative revenue sources to offset potential losses.

As India gears up to implement these Finance Bill amendments, the move is expected to improve trade ties with the US and make the country a more business-friendly destination for digital giants.