Tax receipts from digital economy surge to ₹712 crore in FY19, shows data
Market for online ads on which a 6% equalization levy is applied is up from ₹9,800 crore in FY18 to ₹11,870 crore till mid-FebruaryThe idea behind the equalization levy is to tax services of digital service providers in other markets with a customer base in India
New Delhi: The market for online advertisements hosted by offshore digital services firms aimed at Indian viewers has increased by 21% so far in FY19 from a year ago, signalling the digital economy’s rapid growth and the promise it yields to the exchequer.
Data available with the income tax department showed that the market for online advertisements on which it levies a 6% equalization levy has grown from ₹9,800 crore in FY18 to ₹11,870 crore till mid-February this fiscal year, going by the tax collected from these transactions.
The actual market may be slightly higher as tax is levied only if payments made by an Indian advertiser to an offshore digital services firm is over ₹1 lakh in the previous year.
The idea behind the levy is to tax services of digital service providers in other markets with a customer base in India such as mobile phone apps, social media platforms, and digital content streaming services. As these offshore service providers have little presence in India, taxing their profits is not possible. This prompted the government to roll out equalization levy as a tax deducted at source on payments made to them by Indian firms with effect from June 2016.
It has yielded the exchequer ₹712 crore so far in FY19. Final collection is expected to go up by the end of March. In the previous fiscal, this levy fetched the exchequer ₹589 crore, a government official said asking not to be named. In the nine months the levy was in force in its first year of roll out, it had yielded Rs339 crore.
“Receipts from equalization levy have big growth potential in view of the growing smartphone and internet penetration. Any addition of new digital services to this levy will also lead to growth," said Amit Maheshwari, partner at Ashok Maheshwary and Associates Llp, a chartered accountancy.
The income tax department has also set up a task force to significantly scale up its efforts to tax the digital economy, said the official quoted above. It will find ways of enforcing a proposal outlined in the Union budget for FY19.
The idea is to address the shortcomings in taxing the digital economy by bringing offshore companies with ‘significant economic presence’ in India into the tax net.
Offshore entities with a minimum number of customers will be deemed to have a business presence in India, making them taxable, according to the proposal.
Unless the offshore entity presents its profit and loss accounts, the Indian entity that pays them for digital services will have to deduct tax at the applicable rate—40% in the case of non-resident companies—on the amount paid to them. For offshore digital entities, the cost of providing an online service in India may be negligible.
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