The government should consider keeping in abeyance the 2 per cent equalisation levy on e-commerce companies as there are ambiguities surrounding its applicability, tax experts said.
Budget 2020-21, presented in February, expanded the scope of “equalisation levy” to include consideration received by e-commerce operators from e-commerce supply or services.
The 2 per cent levy came into effect from April 1, 2020.
Nangia Andersen Consulting Chairman Rakesh Nangia said the first instalment of equalisation levy would be payable in July 2020, but unsorted aspects such as double whammy caused on account of Section 10 (50) of the Income Tax Act, meaning and scope of consideration received or receivable, tax registrations and compliances may create hardship to the non-resident taxpayers.
“The provisions of equalisation levy, as notified, has left lot of ambiguities in terms of its application and procedures. Added to this is the business turmoil on account of COVID-19.
“In the best interest of business, the ideal approach should be to keep applicability of equalisation provisions in abeyance until issuance of necessary clarifications,” Nangia said.
Last month, a group of nine business bodies, representing mostly American, European, Australian and Asian foreign companies, had written to Finance Minister Nirmala Sitharaman seeking deferment of 2 per cent tax imposed on non-resident e-commerce companies by nine months due to the crisis triggered by COVID-19.
Non-resident e-commerce operators are those firms that sell goods and services to Indian residents online, but do not have presence in India.
Digital tax
Deloitte India Partner Neeru Ahuja said the legislation introduced is worded in a manner that is all encompassing and the literal interpretation would include a very wide range of transactions — some of them not really digital transactions.
“A review of the legislation and providing clarifications to the industry about any unintended consequences would send a very positive signal to the industry,” Ahuja added.
Shardul Amarchand Mangaldas & Co Partner Amit Singhania said the demand by industry to defer equalisation levy is certainly not unfounded and merits consideration as they feel it is not the right time for such a levy when many of the players are facing existential situation.
“After the announcement of budgetary proposals on 1st February 2020, it appeared that the government would like to wait for the OECD report before making a move, however, the introduction of equalisation levy at time of passing of Finance Act, 2020 came as a surprise to all,” Singhania added.
Digital tax has been a vexed issue in international tax in recent years.
The Organisation for Economic Co-operation and Development (OECD) has produced multiple papers and alternatives for digital taxation but no consensus has been reached on a single approach by various governments worldwide.
“In the absence of any multilateral or globally agreed approach, countries have started imposing digital tax in different ways on a unilateral basis, recent examples are UK and other European nations,” Ahuja added.
Equalisation levy was first introduced by Finance Act, 2016, at the rate of 6 per cent on payments for digital advertisement services received by non-resident companies without a permanent establishment (PE) here, if these exceeded Rs 1 lakh a year.
The government expanded its scope in Budget 2020-21 to include consideration received by non-resident e-commerce operators from e-commerce supply or services. The rate applicable has been set at 2 per cent.