Uncertainty clouds Equalization levy on non-resident e-comm cos; form and FAQs awaited

With just a week left to for depositing the first instalment of the equalisation levy on e-Commerce companies, the Finance Ministry has neither notified forms for deposit nor has it come out with frequently asked question (FAQ).

The due date for depositing this levy for the first three months (April-June) is July 7.

On May 29, the Principal Chief Commissioner of Income Tax (International Taxation) issued jurisdiction order to authorise tax officers working in the international taxation region having jurisdiction in respect of the assessee, to exercise or perform powers and functions for the purpose of expanded Equalisation Levy. However, nothing has happened after that.

Introduced in 2016, Equalisation Levy, also known as ‘Google Tax’, initially was applicable to payments for digital advertisement services received by non-resident companies without a permanent establishment (PE) here, if these exceeded ₹1 lakh a year. The rate of tax was 6 per cent. The companies using these services are required to withhold the tax amount.

In the 2020-21 Budget, the government widened the ambit of the levy by including e-commerce companies. The applicable tax rate is two per cent (plus a surcharge) on amount of consideration received/receivable by an e-commerce operator. This has come into effect from April 1.

Here an e-commerce operator means a non-resident who owns, operates or manages digital or electronic facility or platform for online sale of goods or online provision of services or both.

The law says this levy will not be applicable for any e-commerce operator making/providing/facilitating e-commerce supply or services has a permanent establishment in India and such e-commerce supply or services is effectively connected with such permanent establishment. Also, an operator with annual turnover up to ₹2 crore is exempted from the levy.

For last two months, this levy has been in news for various reasons — a coalition of nine industry and trade bodies, representing a wide range of companies, from multinationals to infant start-ups in India and across the globe, wrote to Finance Minister Nirmala Sitharaman to delay the implementation of the Equalisation Levy on e-commerce companies by at least nine months. Earlier this month, the US initiated investigation into digital services taxes (DST) adopted by India and nine other countries.

Pain points

Amit Maheshwari, Tax Partner at AKM Global, said that the levy has several issues which primarily include very wide coverage (even non e-commerce companies could be covered), mismatch in date of in section 10(50) exempting income subject to Equalisation levy, lack of clarity on how consideration needs to be determined especially in cases where the income is minuscule compared to the transactions facilitated by the non-resident e-Commerce operators.

Another important aspect is that even transactions between non-residents are covered and this seems to be an extra territorial overreach along with practical difficulty in implementation.

“The industry is grappling with these issues and has caused much uncertainty on compliance. It seems that the government is coming out with a long list of FAQs to clarify this complex levy. One hopes that the FAQs clarify rather than add more confusion to it. We expect the government to defer the first installment considering that the FAQs have not even been released,” he said.

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