Budget 2019: FB, Google and other digital firms may be taxed on volume of transaction

The digital global giants such as Facebook and Google may be subjected to new tax rules based on the volume of transactions and the number of consumers in the government’s interim budget on Friday.

The govt plans to quantify transactions between digital companies and their clients along with the number of consumers, said a person close to the development. It may impose a threshold of consumers to ensure that smaller firms do not get impacted, he added.

Earlier, the govt had noted that global digital firms don't pay as much tax as they should. They deliberately base themselves in low-tax jurisdictions. Other countries also have been pushing these firm under the local taxes ambit. This has also led India sudden change of mind and to be with global pace in digital taxation.

Currently, firms are taxed on the basis of the permanent establishment concept.

The new rules may come under two tax brackets, one for home-grown firms and other for foreign registered ones. This may follow with the new framework of digital permanent establishment (PE).

Google has already been under IT scanner for not deducting enough taxes on payment made to the entity based in Ireland, as per ET report.

According to industry experts, with new PE, foreign firms would have to shell out 10 percent more tax in compare to the domestic tax rate, which is around 30 percent.

Though this may also lead to global firms adopting the new structure, they added.

At present, Google, Facebook, LinkedIn, and Twitter are taxed on their advertising revenue in India.