Equalization tax of 6 % on online ads , UPSC PRELIMS 2018 GS , SET C , Q 93

SET C –  QUES 93

Q . With reference to India’s decision to levy an equalization tax of 6% on online advertisement services offered by non – resident entities, which of the following statements is/are correct?

1 . It is introduced as a part of the Income Tax Act.

2 . Non-resident entities that offer advertisement services in India can claim a tax credit in their home country under the “Double Taxation Avoidance Agreements.”

Select the correct answer using the code given below:

a . 1 only

b . 2 only

c . Both 1 & 2

d . Neither 1 nor 2

Answer – d


The government has found a way to indirectly tax companies such as Google and Facebook, a development which could set the stage for taxation of cross-border digital transactions and potentially drive up costs for advertisers.

Instead of a straight tax on digital advertising platforms, the government has come up with what it calls an “equalisation levy” of 6% on the fees that advertisers pay.

Equalisation levy of 6% on digital ad: Government finds a way to tax companies like Google, Facebook

The ‘equalisation’ happens because the government is supposedly levelling the playing field and making companies such as Google and Facebook pay for the money they make from local advertisers.

The nub of the issue is that multi-national digital platforms don’t have “permanent establishments” in the country, which would make them liable to pay tax in India. And they cannot also be double-taxed, which means that the government has had to find a way of earning something from the profits that these platforms have been making.

In his Budget speech in 2016, Finance Minister  said that payments of over Rs 1 lakh a year for online advertising to “foreign ecommerce companies” without permanent establishments would attract a levy of 6%.