Cash starved startups feel gloomy over proposed ‘equalisation levy’ on online ads

Startups that are already reeling under cash crunch are unhappy with the proposed 6 per cent equalisation levy on online advertisements.

A committee set up on taxation of ecommerce had proposed that services such as online advertising, cloud computing, software downloads, web hosting, etc will have an equalisation levy of 6-8% of gross payment if the provider of the service is a foreign entity and does not have a permanent establishment in India.

Through the equalisation levy, the Indian government wants foreign internet companies like Google and Facebook to pay taxes in India.

However, this proposal has not gone down well for cash strapped startups, who say the levy will put a dent on their budget.

"The levy puts us in a precarious position because all these companies-Google and Facebook- which are the most popular advertising platforms for us, are going to make us pay more at the end of the day," Manik Mehta, cofounder Leaf Wearables, told ET.

Also, if the proposal gets a nod, making payments for the levy will become cumbersome.

"Typically, for an SMB client, the media spend is between Rs 50 lakh-Rs 1 crore a month. The taxes are over and above this cost- service tax is 14.5% and 10-15% is the agency's commission. Collecting this money is also painful sometimes, and now if a further 6% is added, small businesses that we deal will might decide to change the structure of their digital spends altogether, and we could end up losing business," Sarita Singh, founder of Gurgaon-based Corpus Digital, told ET.

(Image: Reuters)