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India's digital advertising ecosystem is on the cusp of a significant transformation with the proposed abolition of the Equalisation Levy on online advertisements. This policy shift, set to take effect from April 1, 2025, promises to reshape the competitive dynamics between global tech giants and domestic digital advertising companies.
The Equalisation Levy, introduced in 2016, imposed a 6% tax on payments made by Indian businesses to foreign companies for online advertising services. Its removal is expected to provide immediate financial relief to major international digital platforms like Google and Meta.
Gopa Menon, Chief Growth Officer at Successive Digital, notes that this change will result in significant financial benefits for these companies, reducing their operating costs and potentially increasing their competitive edge in the Indian market. “The levy's removal could heighten competition, as international players gain a more favorable tax positioning,” he notes.
This might lead to pricing pressures and margin challenges for local players, potentially forcing them to explore strategic partnerships or consolidation to remain competitive.
India's digital advertising market is projected to reach Rs 59,200 crore by the end of 2025, growing at an impressive 20.2% year-on-year. This growth is driven by increasing internet penetration, affordable smartphones, and a young population that consumes content primarily online. Innovations in AI, programmatic advertising and data analytics are reshaping how brands engage with audiences.
As Rohit Sakunia, Founder and Director of ArtE Mediatech, points out, the abolition of the levy is a “big win” for the digital advertising landscape. With the 6% tax gone, digital ad costs on platforms like Google, Meta, and Amazon are expected to drop, freeing up budgets for better optimization and scale.
This could enable smaller brands and start-ups to push for more progressive and aggressive campaigns, potentially yielding higher returns on investment. He notes, “This makes Google and Meta more attractive to all kinds of players, particularly those who have budgets determined by strict ROI.”
The latest earnings reports from Google and Meta underscore their reliance on advertising revenue.
Alphabet, Google's parent company reported $96.5 billion in Q4 2024 revenue, marking a 12% year-over-year increase, driven largely by its advertising stronghold. Search advertising remains Google’s crown jewel, with revenue climbing to $54 billion while YouTube also delivered record-breaking ad revenue of $10.47 billion.
Meanwhile, Meta reported revenue of $48.39 billion, in the same period, with Meta's Family of Apps, including Facebook, Instagram, WhatsApp, and Messenger, continuing to be the primary revenue driver, and the segment generated $47.3 billion in revenue.
exchange4media reached out to both Google and Meta for comment. Meta declined, while Google had not responded at the time of writing.
While these companies don't generally publish their India earnings, India is a crucial market for the two tech titans, with India having the highest number of users of both Alphabet and Meta's flagship platforms, including Search, YouTube, WhatsApp and Instagram, globally.
One marketer who chose to remain anonymous pointed out that indeed, Google and Meta may be looking more outwards in terms of new competition, as this move could attract other foreign apps, smaller in size but still popular in individual or a few Western markets, to enter India, with its huge internet population and loosening tax policies and tariffs.
Prakhar Srivastava, Financial Controller at White Rivers Media, highlights that the scrapping of the Equalisation Levy presents both opportunities and challenges. Without the tax burden, global giants could increase their investments, driving innovation and making ads more cost-effective for brands. He notes that smaller domestic agencies may face heightened competition as global players gain financial flexibility to undercut pricing or offer more advanced tools. However, he believes that local firms have inherent strengths—deep regional insights, niche expertise, and agility—that allow them to differentiate in ways large platforms can't easily replicate.
The decision to abolish the Equalisation Levy also reflects India's intent to align with global tax frameworks. The move signals a shift away from unilateral measures toward more multilateral approaches, such as the OECD's two-pillar solution for taxing the digital economy. This transition could enhance India's attractiveness for foreign investment and foster a more competitive digital market.
Menon suggests, “Domestic digital advertising platforms should explore efficiency improvements, invest in unique value propositions, and seek strategic collaborations to remain competitive. This strategic approach could help them navigate the challenges posed by the levy's abolition and leverage the opportunities it presents.”
Opining that the digital, startup, and advertising communities really appreciate its sunset, Siddharth Devnani, Co-Founder & Director, SoCheers, notes, "Honestly, it has a misleading pet name; ‘Google Tax’ was never applicable to Facebook/Meta or Google. They all operate primarily from their Indian entities. There is a tiny list of large media companies or ad networks that fell under the purview of this law. So, Meta, Google, or domestic players – none of them are really impacted. The only impact is on agencies and advertisers – higher ROI and ROAS and a much lower accounting burden for the one-off platforms that use offshore entities."
Sakunia, meanwhile, hopes that the government will not introduce alternative taxation measures, which could offset the benefits of the levy's removal. This concern underscores the importance of maintaining a favorable regulatory environment to support the growth of India's digital advertising sector.
In conclusion, the proposed abolition of the Equalisation Levy marks a pivotal moment for India's digital advertising industry. As the industry navigates this shift, maintaining a balanced regulatory environment will be crucial for fostering a dynamic ecosystem where both global and local firms can thrive.
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