After France India Prepares It’s Own GAFA Tax On Global Tech Giants, Here’s What It Means

After France came out with a legislation to tax global tech giants making profits off of its population using online services, now India is planning for a similar direct tax on the companies, as per a report by the Economic Times.

GAFA stands for Google, Apple, Facebook and Amazon and the tax aims to provide a level playing field to local companies which pay taxes to the tune of 35 per cent in India as corporate tax. It also aims to ensure that the global giants, with subsidiaries registered in countries with lower tax rates, pay taxes on the scale of their profits from India.

As per the report, the government is looking at 5,00,000 users or Rs 20 crore in revenue as the limit for exemption from the proposed tax in line with the Significant Economic Presence (SEP) concept that was mooted in the previous year’s budget.

The move will target tech companies that generate revenue from online services like advertising and social media but pay very little tax due to lack of extant legislation in the emerging area. Revenue from services is booming and as an example, Google India’s revenues rose 30 per cent in 2018 fiscal to Rs 9337.7 crore with close to 70 per cent being driven by ads.

The amount billed to the local users by Google and other companies is however separated into a cost and commission among others. The cost, which is remitted to overseas subsidiaries is reportedly not included in the India revenue. As per the the ET report, Google had remitted over $2 billion to the US-based tech company’s subsidiaries in Singapore and Ireland between 2014 and 2018.

The move follows a similar legislation introduced in France which aims to levy a 3 per cent on the total French revenue of large tech firms operating in France with several other states in Europe like the UK also mulling similar taxes on the firms. However, states like Luxembourg and Ireland, with their lower tax rates are opposing the move.

The most resistance to the idea, however, has came from the United States with its President Donald Trump having publicly responded against the French move to tax the giants, most of which have their headquarters in the US. The move, however, will affect companies across the globe providing online services, including Chinese, German, Spanish and British ones, the French government has said.