What is Equalisation Levy (EL)? Google Tax

Removal of the “Google Tax”

India has already moved to dismantle its standalone digital services taxes:

• The Equalisation Levy (EL): The 6% levy on online advertising (often called the “Google Tax”) was abolished effective April 1, 2025, via the Finance Bill 2025.

• E-commerce Levy: A separate 2% levy on non-resident e-commerce operators had already been removed in August 2024.

• Significant Economic Presence (SEP): While the levies are gone, foreign firms crossing certain revenue or user thresholds in India still face taxation under SEP rules.

2. The U.S. Trade Framework Controversy

A significant diplomatic “glitch” occurred in February 2026 involving the White House:

• Initial Fact Sheet: The U.S. initially released a document stating India “will remove” its digital services taxes as part of a $500 billion trade deal.

• The Revision: Following pushback, the U.S. softened its language, changing the promise to a commitment to “negotiate” digital trade rules rather than an absolute obligation to remove taxes.

• Bilateral Rules: Both nations have agreed to establish a pathway for “robust, ambitious, and mutually beneficial” digital trade rules.

3. Why it Shrinks “Sovereign Policy Space”

The primary concern for India is the loss of regulatory and fiscal autonomy:

• Binding Commitments: Legal advisors warned that accepting unilateral provisions—where India promises not to tax but the U.S. does not make a reciprocal promise—could set a risky precedent for future deals.

• Loss of Revenue: Permanent bans on customs duties for electronic transmissions (like software or streaming services) could cost India an estimated $500 million annually.

• National Interest: Experts argue that digital taxation is a sovereign right; committing to its removal in a trade deal “walls in” the government, making it harder to respond to future economic shocks or protect the domestic tech sector.

What is a Digital Services Tax – Introduction

A Digital Services Tax (DST) is a tax imposed on revenues earned by large multinational companies from providing digital services in a particular country.

It targets companies that offer online services such as advertising, social media platforms, and online marketplaces.

DSTs have been introduced by several countries as a way to ensure that tech giants like Google, Facebook, and Amazon pay their fair share of taxes in the countries where they generate profits, even if they don’t have a physical presence there.

How Does the Digital Services Tax Work?

The Digital Services Tax is typically levied as a percentage of the revenue a company earns from digital services provided to users in the country that imposes the tax.

For example, a DST might charge a 3% tax on the revenue a company earns from online advertising or user data collection.

Unlike traditional corporate taxes, which are based on a company’s profits, the DST is based on revenue.

This means that even if a company isn’t making a profit in a given year, it will still have to pay the DST on the revenue it generates from digital services.

Who Does the DST Affect?

The DST usually applies to large multinational tech companies that generate significant revenue from digital services.

Most countries that have introduced a DST apply it to companies with global revenues above a certain threshold, often €750 million or more.

For example, the UK’s DST applies to companies that earn more than £500 million in global revenues, with at least £25 million coming from UK-based users.

It should be noted that the UK has undertaken to withdraw this tax with the introduction of the OECD’s Pillar Two under the BEPS project.

Why Was the Digital Services Tax Introduced?

The DST was introduced in response to concerns that large tech companies were not paying enough tax in the countries where they generate significant revenue.

Because these companies often operate online, they don’t need a physical presence in a country to make money, which means they can avoid paying local taxes by basing their operations in low-tax jurisdictions.

The DST ensures that these companies contribute to the tax base of the countries where they earn their revenue, even if they don’t have offices or employees there.

Conclusion

The Digital Services Tax is a response to the challenges posed by the digital economy.

By taxing revenue rather than profits, the DST ensures that large tech companies pay their fair share of taxes in the countries where they operate, even if they don’t have a physical presence there.

This tax is seen as a temporary measure while global tax reforms, like the OECD’s Pillar One are being finalised.