Even though the government did not mention increasing the scope of equalisation levy, the same is expected to be rolled out in the coming months, people close to the development have said.

Under the new definition, the government is looking at a 6% tax levy on all online multinational companies that earn revenue from India. Equalisation levy, colloquially called Google tax, could soon ensnare the likes of IBM, Microsoft, Amazon Web Services, Apple and Netflix, which provide online services in India, say experts.

India became the first nation to tax digital transactions when it introduced the equalisation levy of 6% on the advertising revenue of multinational web companies in June last year. Now, based on feedback from senior tax experts, the government is widening the ambit of the levy. ET was first to report about such a change in December last year.

While the equalisation levy is 6%, the actual burden could be about 7-8%, mainly due to the grossing up of taxes. Currently, the equalisation levy is applicable only on online advertisements, affecting a handful of companies including Facebook, Google, Yahoo and LinkedIn. Most of these companies, apart from LinkedIn, pass on the additional cost to their customers.

The government wants to broaden the scope of the equalisation levy in a phased manner, said people close to the development, and this could include even the downloading of apps on smartphones. “It was earlier decided that by December this year the levy would be applicable on applications (apps) bought on platforms like Google or Apple. However, due to other regulatory changes, equalisation levy was postponed for the budget,” the person with knowledge on the matter said.

Industry experts said the equalisation levy allows multinationals to claim credit in their home country. However, no other country has such a tax at the moment, so claiming such a credit is very tough for multinationals. In most cases, these multinationals would pass on the cost to their customers and advertisers.

India was the first to start taxing the revenue of multinational companies in the digital space, in line with the Organisation for Economic Co-operation and Development’s Base Erosion and Profit Shifting project to tax ecommerce transactions. From the next financial year, multinationals will have to submit details of their revenue, profit, people they employ and taxes paid in each country, according to the OECD framework, which is aimed at curbing tax evasion through loopholes in international laws.