Global technology giants like Facebook, Amazon, Google, Twitter may soon be asked to pay digital tax for operating its services in India. Central Board of Direct Taxes (CBDT) has proposed a new tax system called Digital Tax. It ranges between 30-40 per cent based on the revenues and user base of such companies.
Any digital firm with a user base of over 200,000 shall be liable to pay the tax. As per the existing rule, which is based on physical presence, the tech giants are not required to pay taxes. The rights of the source country to tax business profits that are derived from its economy are unfairly and unreasonably eroded, as per the Finance Bill 2018 explaining significant economic presence.
If the proposed changes come into effect, it may lead to a complete restructure in the holding of these tech firms. According to experts, this tax system may be handled with extreme caution, as this may discourage foreign investments and trade relations and can also lead to unemployment.
According to a Business Standard report, the final guideline on this new tax system may take up to a year to be drafted. The draft proposal has been shared with 180 countries and has received positive feedback from 125 of them. These global tax giants eradicate paying taxes by deliberately setting up bases in low-tax jurisdictions and end up paying comparatively low taxes.
As per the current law, the subsidiaries of foreign companies operating in India have to pay 40 per cent corporate tax which is 10 per cent more than what Indian companies pay. In addition, government levies 6 per cent tax for the payment made by a resident firm to foreign e-commerce companies for online advertisement.