Context: The collective demand for extending the date of equalisation levy by the U.S.-India Strategic Partnership Forum (USISPF) has been refused by the Finance Ministry.
- Equalization levy is aimed at taxing foreign companies which have a significant local client base in India but are billing them through their offshore units, thereby evading the country’s tax system.
- Equalisation levy at 6% has been in force since 2016 on payment exceeding Rs 1 lakh a year to a non-resident service provider for online advertisements.
- The Budget 2020-21 expanded the ‘equalisation levy’ to include other supply of services such as online sale of goods by e-commerce operators.
- The new 2% tax would be levied on consideration received by e-commerce operators from online supply of goods or services.
- It will be applicable to all digital businesses earning more than Rs. 2 crore of revenue from India or using Indian data.
- The levy is 6% for payments for hosting online advertisements, while it is 2% in the case of other e-commerce activities.
- It is not considered as income tax and is not covered by the tax treaties India has with various countries.
Concerns of Non Resident E-Commerce Entities:
- The tax is expected to impact the profits of companies like Google, Amazon etc.. unless they deal with Indian Companies via their subsidiaries. This will happen as they will not get any tax credit in their home country for paying equalisation levy in India.
- They will need to increase their prices which might in turn be detrimental for the growth of new enterprises which are dependent on affordable marketing via e commerce platforms.
- Apart from this there are administrative hurdles like application of PAN number by non resident entities is a time consuming process.
- Further the companies are facing difficulties in ascertaining the appropriate amount of tax they need to pay owing to the complexity of laws and exemptions therein.
The government is going ahead with the new digital economy tax and the firms must pay the same on time. Any delay will attract a 1% per month penalty while non-payment will lead to a penalty similar to equalisation levy plus the interest accrued.
https://www.thehindu.com/business/Industry/centre-wont-extend-deadline-for-levy-on-foreign-e-com-firms/article32015712.ece#:~:text=The 2% equalisation levy was,April-June is July 7.&text=There would be no extension,payment,” the official added.