Google India revenue drops by more than half owing to change in accounting method

Indian tax officials are concerned about revenue outflow outside the country.

Photo by Arthur Osipyan on Unsplash

Google India, the Indian arm of US-headquartered search engine giant Google, reported that while its net profit has increased by 16% year-on-year to USD 66.7 million in fiscal 2019, it saw a decline in its revenue by 57% to USD 563 million, compared to the previous financial year, according to Google India’s filings with the registrar of companies, sourced by Indian business intelligence platform, Tofler.

The drop in revenue, Google India said, is due to the change in its accounting standards, as mentioned in its annual financial filings. The new accounting standards came into effect from April 1, 2018 as the Ministry of Corporate Affairs wanted more transparency in the way technology service companies report their results.

“IT services, BPO services, telecom, construction, and advertising are among the sectors more impacted by this change (new accounting standards). For simpler transaction models such as the sale of goods, the impact is minimal, but in services contracts or those which span multiple periods and components can be more impacted by this change,” Sai Venkateshwaran, partner and head of CFO Advisory at KPMG India, told local media, CNBC TV 18.

Google India earns a major share of its revenue from paid advertising that appears alongside its users’ search results. In 2017-18, Google India clocked about a 30% jump in its revenue compare to the previous fiscal year. Apart from advertising, other main channels that contributed to Google India’s revenue were IT services at 35%, and IT enabled services at 36%.

The Organisation for Economic Co-operation and Development (OECD), an international organization has also recently listed the guidelines to tax digital companies like Google, Facebook and Netflix, among others. India is working with the OECD in areas like taxation, fiscal affairs, competition policy, and financial literacy. This translates to the fact that digital companies have to pay larger tax liabilities than what they currently pay in India.

Companies like Google India, which are foreign entities, and without a permanent establishment in India, are taxed a 6% ‘equalization levy’ by India on digital advertisement revenue, if it exceeds USD 1410 a year.

Google and Facebook are the two largest players in the digital advertising industry worldwide as well as in India. According to a report by the Dentsu Aegis Network Digital Report published earlier this year, the digital advertising industry in India is expected to grow at a rate of 32% to reach USD 3.5 billion in 2019.