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Equalisation Levy will hurt Indian Tech Start-Ups: IAMAI

29-April-2016
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Equalisation Levy will hurt Indian Tech Start-Ups: IAMAI

The Internet and Mobile Association of India (IAMAI) is of the view that the proposed 6 per cent levy on the online advertisement revenue of non-resident companies from B2B transactions introduced in the Finance Bill 2016 will severely raise the cost of doing business of Indian tech start-ups and the SMEs that are primary users of the digital ad platforms. The tech start-ups are already paying 14.5 per cent service tax to use these ad platforms which amounts to an estimated INR 906 crores of taxes to the government. With the implementation of GST, the tax rate is likely to move to 18 per cent bringing more taxes to the government from this segment. 

Considering the incidence of 6 per cent levy will be passed on to the advertisers by the ad platforms, the total burden to SMEs and Tech Start-ups on account of Equalisation Levy on International Advertising Platforms would be INR 429 crores, a massive hike of nearly 50 per cent. This is likely to cripple the start-ups. 

Commenting on the issue, IAMAI president Dr. Subho Ray said, “Prima Facie it looks impractical and unreasonable, that to collect additional revenues of INR 400 crores, the government is ready to hurt the start-ups”. This is actually a tax on Indian start-ups.”

This provision of the Finance Bill has its genesis on a consultation paper [CP] by the Central Board of Direct Taxes [CBDT], that goes on to recommend such levies on non-resident companies that provide hosting, cloud, e-commerce and such other services in India. If the full recommendation of the CP is implemented, it may be the beginning of the end for tech start-ups.

The claims of the government that the proposal of an equalisation levy is basis the recommendations of the OECD report titled ‘Addressing the Tax Challenges of the Digital Economy’ are patently false and contradict the BEPS recommendations. The suggestion of Equalization Levy was rather pulled out of the recommendations due to lack of consensus amongst OECD and G-20 member.

Dr. Ray added, “India will stand out like a sore thumb, if the government doesn’t withdraw this proposal.”

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