India Plans to Scrap 6% Online Ads Tax to Ease U.S. Trade Tensions

The Indian government has proposed abolishing the 6% equalisation levy, often called the "Google tax," on online advertisements starting April 1, 2025. This tax, introduced in 2016, targeted non-resident digital companies like Google and Meta, requiring them to pay a levy on revenues generated from Indian advertisers. The move is part of amendments to the Finance Bill, 2025, and is seen as a step to ease trade tensions with the United States, which had criticized the tax as discriminatory against U.S. tech companies.

The decision comes amidst ongoing trade negotiations between India and the U.S., with the aim of fostering better bilateral relations. The removal of this tax is expected to reduce advertising costs for Indian businesses, particularly benefiting startups and small enterprises. It also signals India's intent to create a more favorable tax environment and address concerns raised by partner nations.

The levy had been criticized by the U.S. as discriminatory against American tech companies like Google and Meta. Its removal is seen as a diplomatic measure to ease trade tensions and prevent reciprocal tariffs.

Eliminating the levy reduces costs for digital advertisers and platforms, fostering a more favorable business environment.

The move aligns India with global efforts to establish uniform tax rules, replacing unilateral measures like the equalisation levy.

The Indian government aims to streamline income tax legislation and align with global tax norms, particularly those proposed by the OECD (Organisation for Economic Co-operation and Development), an international organization established in 1961 that works to promote policies that improve the economic and social well-being of people worldwide.

The OECD provides a platform for governments to collaborate, share experiences, and seek solutions to common challenges. Its key focus areas include economic growth, education, employment, trade, and tax policies. The organization has 38 member countries, primarily high-income economies, and its headquarters is located in Paris, France. The OECD also plays a significant role in setting international standards and fostering global cooperation on issues like tax transparency, environmental sustainability, and digital transformation.

The abolition of the 6% equalisation levy is expected to have several positive impacts on India's digital economy.

The removal of the levy will reduce costs for businesses advertising on platforms like Google and Meta. This is particularly beneficial for startups and small enterprises, making digital advertising more accessible and cost-effective.

With reduced costs, businesses are likely to increase their spending on digital advertisements, further fueling the growth of India's digital advertising market, which is already expanding rapidly.

Besides, the move is also seen as a step to create a more favorable environment for global tech companies, potentially attracting more investment and innovation in India's digital ecosystem.

While benefiting international platforms, the move may also push local digital advertising agencies to innovate and offer more competitive services.