India scraps its ‘Google Tax’ following OECD settlement

India’s government has confirmed it will scrap the ‘Google Tax’, a charge imposed on foreign companies providing digital services.

First introduced in 2016, India imposed a six percent tariff on non-resident firms that were offering services to local companies or those with permanent foundations in the country. It was later extended to include a two percent fee applied to e-commerce companies providing goods and services to Indian citizens and residents.

Finance Minister Nirmala Sitharaman announced the existing two percent levy would be axed as part of the budget speech for the 2024-25 period, with the change to take effect as of August 1, this year. Sitharaman previously described the tax as a “sovereign right”, taking back from foreign companies profiting from their enterprises.

There was diplomacy behind the change of tack after the US reached a consensus with India back in November 2021 to replace the levy with an international taxation regime following the Organisation for Economic Co-operation and Development (OECD) agreement.

What is the OECD minimum tax agreement?

As part of the OECD terms, multinational companies would face a minimum tax in the jurisdictions they provide their services, even if they don’t have a permanent establishment in a particular location. Before the agreement, the US – home to other big tech giants such as Amazon and Microsoft – had campaigned against what it saw as a discriminatory tax and a burden to American trade. In response, Washington applied a whopping 25% tariff on goods imported from India but later suspended the threat.

Other plans as part of India’s new budget include initiatives to advance tech in small business, digital support for the agriculture sector, more government digitalization, more data gathering to inform government policy, and further investment in capacity for the production of critical minerals for electronics manufacturing.

 

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