India’s digital tax, which targets big tech companies, comes into force this month. However, Google (NASDAQ:GOOGL) isn’t happy about the digital tax. According to a Reuters report, Google, Facebook (NASDAQ:FB), and other US technology companies that will be impacted by India’s new tax want a delay. The report stated that the companies want the tax to be postponed by at least six months.
India’s digital tax will apply at the rate of 2.0% of digital services sales in India. Specifically, the tax targets foreign companies that make more than 20 million rupees ($260,000) in sales. Google’s sales were about 41.5 billion rupees in India in the fiscal year that ended in March 2019.
Google needs time to prepare for India’s digital tax
India’s digital tax plan, also called the “equalization levy,” caught companies like Google off guard. As a result, companies want more time to prepare for the digital tax plan. Google will need time to identify its foreign sales that will be subject to India’s new tax.
France also sought to impose a 3.0% digital tax on big tech companies. Google protested France’s digital tax as well. The company argued that the tax could generate confusion. Eventually, France agreed to delay the tax after the Trump administration weighed in on the matter.
New tax could create headwinds for Google
Notably, India’s digital tax plan comes just when Google has been working to expand its business in the country. India has one of the world’s rapidly expanding cloud computing markets. Google has its sights on India’s markets. In January, Google signed Airtel to resell its cloud services to business customers in India. Airtel is one of India’s top mobile operators. The company serves more than 500,000 business customers.
Google has been making huge investments to grow its cloud business as it works to diversify its revenue sources.
Besides cloud, Google also has its sights on India’s digital payments market. The company has built an Indian specific mobile payment app that it initially called “Tez” but it now calls “Google Pay.” India’s mobile payment market is on track to grow to $1.0 trillion by 2023 from $200 billion in 2018.
However, India’s digital tax could create headwinds for Google’s big growth plans in the country. The tax comes just when businesses face the COVID-19 crisis.