India has decided to abolish the ‘Google tax’, formally known as the Equalisation Levy, following growing pressure from the United States. This move comes as part of ongoing negotiations between India and global tech giants, particularly in the context of international tax reforms.
What is the ‘Google Tax’?
The Equalisation Levy, introduced in 2016, was designed to tax digital transactions involving foreign companies that generate revenue from Indian users without having a physical presence in the country. This primarily affected global tech firms like Google, Facebook, and Amazon, leading to concerns from the US government and business lobby groups.
Why is India Scrapping It?
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Pressure from the US: The US has repeatedly criticized the levy, arguing that it disproportionately targets American tech companies. Trade tensions escalated as Washington viewed the tax as discriminatory against its digital firms.
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Global Tax Agreement: India is aligning with a multilateral tax framework under the OECD’s global tax reforms, which propose a fairer system for taxing digital services. As part of this agreement, India is phasing out the levy in exchange for a global minimum tax deal that ensures big tech firms contribute fairly across all markets.
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Encouraging Foreign Investment: The move is also seen as an effort to create a more business-friendly environment for foreign investors, especially in the technology sector, which is crucial for India’s growing digital economy.
What’s Next?
With the abolition of the Equalisation Levy, India will now shift to a new international tax structure, ensuring that major tech firms pay taxes based on global revenue-sharing agreements. While this decision may reduce short-term tax collections, it is expected to strengthen India’s trade relations with the US and promote long-term economic growth.
As global tax norms evolve, India’s decision signals a strategic shift towards greater cooperation with international economic frameworks, balancing domestic interests with global diplomatic priorities.