Exclusive: Google tax mop up more than doubles in first half of FY22

India's revenue from the contentious 2 per cent equalisation levy (EL) on non-resident digital players like Google, Netflix, and Amazon nearly trebled after the second quarter of the current fiscal year.

The sharp increase in earnings comes ahead of the agreement on the global tax deal proposal at the Organization for Economic Cooperation and Development (OECD) expected on Friday, which may require New Delhi to withdraw the equalisation levy by 2023.

Collection from the levy, or the so-called Google tax, grew 150 per cent after the second quarter installment payment on October 7 at Rs 1,618 crore compared to Rs 647 crore during the same time last year, data accessed by BusinessToday showed.

Government officials attributed the higher mop up to improved compliance and a bounce back of economic activity this year, despite a second COVID-19 wave.

"The issuance of clarification over the coverage or extent of the levy may have brought in more entities in the equalisation levy net. Besides, there was not much economic activity last year, whereas there is a sharp economic recovery this year," a government official said.

India's IT hub, Bengaluru led the collections, accounting for nearly half of the total earnings at Rs 700 crore, a growth rate of 128 per cent over last year.

It was followed by Hyderabad, which saw collection grow by 128 per cent to Rs 446 crore, compared to Rs 195 crore last year.

Delhi recorded a 261 per cent growth over the corresponding period last year to Rs 318 crore from Rs 88 crore.

Mumbai saw collection grow by 172 per cent to Rs 106 crore from Rs 39 crore in the April to September period last year.

Also Read: Here's everything you should know about the global tax deal to be finalised on Oct 8

E-commerce companies that fall under the scope of the equalisation levy include Alibaba, Adobe, Uber, Udemy, Zoom.us, Expedia, Ikea, LinkedIn, Spotify, and eBay.

India collected Rs 2,057 crore from the levy in 2020-21, an 85 per cent growth rate over Rs 1,136 crore in the previous fiscal year.

Meanwhile, direct tax collection net of refunds saw a 77 per cent growth rate over last year at Rs 6.11 lakh crore as against Rs 3.46 lakh crore last year.

"The collections are improving due to the fact that more entities have got into the EL net. The government clarified on the scope of EL earlier this year. Improved economic performance is also a factor contributing to higher collections," said Rakesh Nangia,  Chairman, Nangia Anderson India.

Also Read: Google Tax: Govt collects Rs 1,494 crore equalisation levy between April 2020-January 2021

Gross direct tax collection up to October 7 is 49 per cent higher at Rs 6.96 lakh crore as against Rs 4.67 lakh crore.

Contrary to the rising revenue potential of the equalisation levy, the OECD tax deal, being finalised, may have a limited revenue significance for India as residual profits of only the top 100 global players will be allocated to market countries. 

However, the OECD has estimated that developing countries are expected to gain an additional 1% of corporate income tax (CIT) revenues, on average.

Worried that the proposed global digital tax deal may not lead to sufficient revenue for developing countries, India, along with other Group of 24 (G24) member nations, has pressed against the withdrawal of unilateral measures like the equalization levy (EL) in one go and are seeking a gradual removal of the levy.

However, according to the OECD, there will be no rationale for these unilateral taxes.

The equalization levy was introduced at the rate of 6 per cent in 2016 for digital advertising services, which led to a Rs 200 crore collection that year. 

The scope was widened in April 2020 to impose a 2 per cent tax on non-resident e-commerce players. The scope was further expanded in the budget 2021-22 by way of clarifications.

The EL has been a bone of contention between India and the United States, with the latter deciding to impose additional tariffs on a slew of Indian imports, including basmati rice, seafood, jewellery, bamboo, semi-precious stones and pearls, among others. 

However, the tariffs are currently suspended for six months with expectation of a multilateral solution on the issue of digital taxation.