How non-resident e-commerce players came under equalisation levy

The revenue-hungry Centre has moved quickly and quietly to bring non-resident e-commerce operators into the ‘equalisation levy’ net from April 1.

The ‘equalisation levy’ was introduced in 2016 on payments made by residents to a non-resident for online advertisements. The Centre has now widened the net to cover non-resident e-commerce operators.It may be noted that for this purpose, e-commerce operator has been defined as a person who owns, operates or manages a digital or electronic platform for online sale of goods or services or both.

What is commendable about this unilateral move is that it came even as the OECD countries under the Base Erosion and Profit Shifting (BEPS) Action Plan I are still striving to get a consensus on the taxation of digital economy.

Sore point

However, a sore point for industry is that the move came surreptitiously through amendments —which got passed in Parliament without discussion — to the Finance Bill 2020 on Monday. There are some tax experts who point out that Indian revenue biting the digital economy bullet was always on the cards, given that a government appointed panel, which went into the matter had few years ago, listed out the areas that need to be brought under equalisation levy in due course of time.

India — which has been at the forefront in taking initiatives on digital taxation — can now hope to garner a tidy pile from several non-resident e-commerce operators who sell goods and services to Indian consumers without having a taxable presence here.

By subjecting the non-resident e-commerce operators to “equalisation levy”— albeit at lower rate of 2 per cent as against 6 per cent for digital advertising — the Centre has effectively ensured that these operators cannot enjoy tax treaty benefits, say tax experts. This is because ‘equalisation levy’ is not being categorised as a direct tax and it was in fact introduced separately under the Finance Act in 2016.

SR Patnaik, Partner & Head – Taxation, Cyril Amarchand Mangaldas, said it appears that this is a last ditch effort by the Finance Minister to generate some amount of additional tax revenue in today’s uncertain times. “While she is hard-pressed to look for resources, the environment today does not allow her to increase the tax rates. Hence, she may have been coerced to target a sector like this. Having taken this steps, it will be interesting to see what her future course of action shall be after the OECD has finalised its strategy regarding taxation of the digital economy,” Patnaik said.

‘Big step’

Aseem Chawla, Managing Partner, ASC Legal, a law firm, said this marks the first big step by the government in exhibiting the resolve to tax digital services and supplies.

Amit Maheshwari, Partner, Ashok Maheshwari & Co LLP, a CA firm, said the Centre has in the recent amendments not only brought non-resident e-commerce operators under the equalisation levy, but also postponed till October 1 the 1 per cent TDS provision on e-commerce operators that was to come into effect from April 1.

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