#e4mXplains: What abolition of Equalisation Levy will mean for India’s digital ad market

In the ever-evolving landscape of India's advertising industry, digital media continues to paint a vibrant picture of growth and potential. According to the recently released dentsu-e4m Digital Advertising Report 2025, India's digital advertising industry is poised for transformative growth, projected to reach ?59,200 crore by the end of 2025 and ?69,856 crore by 2026, accounting for over 61% of total advertising spend. This rapid expansion reflects the increasing reliance on digital platforms as brands cater to mobile-first consumers in a tech-savvy nation.

However, this growth may soon coincide with a significant policy shift—the proposed abolition of the Equalisation Levy on online advertisements from April 1, 2025. This decision marks a pivotal moment for India's digital economy, impacting advertisers, global tech giants like Google and Meta, and international trade relations.

Taxes & the Landscape

India's advertising industry is projected to grow at 6.5% in 2025, reaching ?1.1 trillion by year-end. Within this, digital advertising has emerged as the dominant segment, contributing nearly half (49%) of total ad spend in driven by key growth areas such as video advertising (?12,209 crore in 2024), social media advertising (?10,506 crore in 2024), and e-commerce platform ads. Innovations in artificial intelligence (AI), programmatic advertising, and data analytics are reshaping how brands engage with audiences.

The market's growth is fuelled by increasing internet penetration, affordable smartphones, and a young population that consumes content primarily online. By 2026, India's digital ad market is expected to touch ?70,000 crore as brands continue shifting their budgets toward digital platforms.

Introduced in June 2016 as part of the Finance Act, the Equalisation Levy—commonly referred to as the "Google Tax"—was designed to tax payments made by Indian businesses to foreign companies for online advertising services. It imposed a 6% levy on payments exceeding ?1 lakh annually to non-resident companies providing digital ad services. In 2020, its scope was expanded to include a 2% levy on e-commerce transactions by nonresident operators earning over ?2 crore annually from Indian customers.

The levy aimed to ensure foreign tech giants like Google and Meta contributed to India's tax system despite lacking physical presence in the country. However, it faced criticism from international partners like the US for being unilateral and discriminatory.

That being said, according to their latest earnings report, for Alphabet, the Q4 2024 earnings report shows total revenue of $86.31 billion, with Google Services revenue of $76.31 billion. Google advertising revenue was $65.52 billion, including $48.02 billion from Google Search & other, $9.2 billion from YouTube ads, and $8.3 billion from Google Network. Google Cloud revenue was $9.19 billion.

For Meta, the Q4 2024 earnings report indicates total revenue of $40.11 billion, with advertising revenue of $38.71 billion. Meta's Family of Apps segment, which includes Facebook, Instagram, WhatsApp, and Messenger, generated $39.04 billion in revenue, while the Reality Labs segment contributed $1.07 billion. Meta reported a net income of $14.02 billion for the quarter.

While these companies don't generally publish their India earnings, India is a crucial market for both 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.

The decision to abolish the Equalisation Levy stems from multiple factors: International trade relations, as the levy had been a point of contention between India and the US; global tax framework alignment, signaling India's intent to align with multilateral tax frameworks; simplification of tax laws; and economic strategy, as removing this tax is expected to lower costs for advertisers and encourage higher spending on digital platforms.

Implications and Future Outlook

The abolition of the Equalisation Levy will have far-reaching consequences for India's digital advertising ecosystem (stay tuned for more coverage). Advertisers will likely benefit from reduced costs when purchasing digital ad services from global platforms. Global tech companies stand to gain significantly, with platforms like Google and Meta potentially seeing boosted revenues from Indian advertisers. While scrapping the levy reduces direct taxes on foreign tech companies, it does not necessarily mean a loss of revenue for India's government due to proposed changes in tax exemptions.

The removal of this tax could make India's digital economy more attractive for foreign investment by reducing compliance burdens and signaling openness toward multinational corporations. However, it also presents challenges, including potential revenue loss for the government and intensified competition for smaller domestic players.

India's decision reflects its willingness to transition away from unilateral measures toward globally accepted frameworks for taxing digital services. The OECD's two-pillar solution proposes reallocating taxing rights for multinational corporations based on customer location (Pillar One) while introducing a global minimum corporate tax rate (Pillar Two). While adoption of these measures may initially reduce India's tax revenue compared to the Equalisation Levy, they promise long-term stability and international cooperation.

The abolition of India's Equalisation Levy marks a significant shift in its approach to taxing the digital economy. As India's digital advertising market continues its upward trajectory, it stands at an inflection point shaped by policy changes and evolving international dynamics.