Big tech firms must pay taxes

The government’s dealing with multinational technology firms has always been a messy affair. The Centre has till date been unable to come up with an appropriate policy to tax profits made by these companies in India. Following a Bengaluru-based Income Tax Appellate Tribunal (ITAT) order of last year, the Modi government seems to be moving on plans to tax companies like Google, Amazon, Facebook and Apple. Like many European geographies, India seeks a ‘fool-proof’ framework to tax big technology firms that have never paid a penny in taxes. This may not go well with US President Donald Trump, who has been fuming that several of America’s trade partners, including Italy, Spain, France and Australia, have begun to tax large technology companies. India may be a late entrant to this list of countries that have carved out what’s called the GAFA (Google, Amazon, Facebook, Apple) tax, but there’s no reason why the technology firms should be allowed to get away without paying any tax here.

Google alone is reported to have transferred over $ 2 billion from its Indian operations to the company’s subsidiaries in Singapore and Ireland in the last four years. It’s not shown as profits being taken out. Digital and internet companies should be made to fork out their share of taxes. Former finance minister Pranab Mukherjee had asked all foreign companies, including internet firms, to pay up and not to treat India as a ‘banana republic’. But, getting the taxation framework right and sustainable is the challenge. The proposal to tax firms with an annual turnover of Rs 20 crore and 500,000 customers is significant. Taxing them on par with other foreign-owned entities with or without a legally established entity is an important step.

The Trump administration is bound to intimidate the Indian leadership on the move to tax American technology companies. The government must ready itself to counter any irrational trade behaviour by Washington. It is worth analysing the taxation law approved by the French parliament recently that proposes a 3% tax on all revenues – not profits, mind you – of 25 million euros from its soil or 750 million euros globally. The United Kingdom’s model to slap 2% impost on revenues from search engines, media platforms and marketplaces on revenues worth 25 million pounds from the country, 500 million pounds internationally is yet another way. Australia’s 5%, Spain’s 3% and Italy’s 2% tax on revenues provide alternative models. Getting the taxation model for internet giants right, and rallying the G-20 group of countries against corporates that seek to escape taxes is the key to be able to tap into this source of revenue for the government.

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