Government of India introduced Equalisation Levy (EL) on consideration received by non-resident e-commerce operators for e-commerce supply or services at 2% at the enactment stage of the Finance Bill 2020, around the end of March and, with effect from 1 April 2020.The government seems to be wanting to collect taxes where there is some sort of nexus between the revenue of the non-resident and the Indian market.
It may be mentioned that EL was levied in Finance Act, 2016 on services in the nature of online advertisement/digital space provided by non-resident vendors to Indian resident customers. The EL was fixed at 6% and the Indian customer was required to deduct this at source and deposit with the government. FA 2020 has now sought to expand the scope of the EL to include other revenue streams of non-residents; the levy is at 2% for these new sources.
What is EL? Equalisation Levy is a direct tax applied to non-resident e-commerce companies in India. The Equalisation Levy introduced by the Finance Act 2016, was charged at 6% on certain online advertising and related services. The Finance Act 2020 amended the Finance Act 2016, introducing a new Equalisation Levy at 2% on the consideration received/receivable by an e-commerce operator from the following transactions (e-commerce supply or services):
·Online sale of goods owned by the e-commerce operator; or
·Online provision of services provided by the e-commerce; or
·Online sale of goods or provision of services or both, facilitated by the e-commerce operator; or
·Any combination of the above-mentioned activities
Key features of EL, 2.0:
·Understanding the impact - Consideration subject to the EL has been exempted from Indian Income tax and thus not subject to tax withholding. Further, no credit is available for the EL against the Income tax liability in India. To analyse the overall impact, one needs to consider the credit for withholding tax that may be available in the country of residence. Thus, a threadbare examination of certain services may be required to determine whether they are subject to the EL or Withholding taxes.
·The levy does not apply in the following cases - E-commerce operator has a Permanent Establishment in India; Transactions covered by the Equalisation Levy under Finance Act 2016; Where sales, turnover or gross receipts from e-commerce supplies or services is less than Rs. 20 million during the relevant tax year.
·‘E-commerce operator’ has been defined to mean a non-resident who owns, operates or manages a digital or electronic facility or platform for online sales of goods or online provision of services, or both. Both ‘e-commerce supply or services’ and ‘e-commerce operator’ have been defined widely to cover more than the normally understood connotation of marketplace intermediaries and aggregators.
·Unlike the earlier EL which required the levy to be deducted by the service recipient, the new levy is to be collected by the e-commerce operator. The e-commerce operator is required to deposit the levy to the credit of the Indian treasury on a quarterly basis.
·The levy is imposed under the Finance Act 2016 and not as a part of the Indian Income Tax Act, 1961.
·Transaction(s) between two non-residents where either the market place is in India or the IP address is Indian, are brought under the ambit of the new levy.
Major tech giants across the globe have expressed their concerns over the new levy, remarking that the effective time window for them to comply with the new levy is too short. Many have also expressed concern that their systems would need to keep track of IP addresses, and their invoicing systems may require considerable overhaul. Considering the current situation and the limited window for compliance, several representations have been made to defer the implementation of the levy.
The Indian government is now trying to tap into these sources given the extensive digitalisation of businesses with no direct presence in India.