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Scrutiny
  
A new revenue model?
Is the Indian government missing out on billions?
15/10/2009

One of the fastest growing nations, India faces a severe problem when it comes to effective and adequate revenue generation. For example, the government succeeded in generating only Rs.6,279.49 billion as gross tax collection while the proposed budget expenditure is Rs.9,532.31 billion in the budget year 2009-10. The country faces a budget deficit of Rs.2412.73 billion, which is 4.4% of GDP, a figure high for an emerging nation (in 2009, China’s budget deficit stood at yuan 111 billion, which is just 0.4% of the GDP). Since taxation is the major revenue source, the Indian government keeps attempting to look at increasing as well as ‘innovative’ ways generate more money. We looked around, and think we have one which will qualify in their standards. And that is to bring net based companies under an organised tax structure – beyond simply service and profits tax payments – on a narrow premise that we’re forwarding.

As a case study, search engine Google follows a unique revenue model with innovative products and services. It has AdWorks, which is a pay per click advertising program. This allows advertisers – on Google search and on other Google sites – to present their advertisements instantly to people who are looking for information similar to what the advertiser has to offer. And the advertiser pays Google for every click that surfers make on their links. Moreover, it has Ad-Sense, which allows Google to place clients’ advertisements on partner sites, wherein the partner sites earn part of the per-click payment. This unique double combo revenue model helped Google earn $21.79 billion in the FY2008, up from $16.59 billion in the last year. Even in the last quarter ending June 30, 2009, Google generated astounding revenues of $5.52 billion despite all talks of an economic slowdown. Yahoo is another internet service provider that generates a hefty chunk of money following a very similar revenue model. Yahoo Inc. generated $7.2 billion in the FY08 compare to $6.9 billion in the last year. In the last quarter ending 2009-06-03, Yahoo generated $1.57 billion.
There are thousands of other search engines, internet service providers, online news portals and community networks that attract millions of surfers and earn billions of dollars for simple clicks.

The critical issue is that a significant number of these clicks that generate the above said billions originate in India – where surfers clearly use national infrastructure (routers, cross-country transponders, transmission lines, and the works). We propose that the government taxes a small part of the revenue that various international and national net based companies earn through the pay-per-click route. That is, we’re proposing that in the same way as Google (through their Ad-Sense module) pays a part of their earned revenues to partner sites – if the click on Google’s client’s ad was made through the ad displayed on the partner’s site – Google should also then necessarily pay the Indian government a part of that pay-per-click revenue earned, if the click has been made inside the national boundaries of India.

Interestingly, online ad spending is on rise in India. The online ad expenditure in 2006 was around Rs. 2.1 billion, which increased to Rs. 4.5 billion in 2007. The same is expected to reach Rs.22.5 billion by the end of 2009. There are 2.707 million internet hosts while the country has 80 million internet users; even this is increasing drastically. Today, online advertising contributes $300 billion to the American economy (2.1% of the GDP). What say the Indian government partakes of some of it?

By:- Akram Hoque
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