Representation to Ministry of Finance: Issues requiring clarifications, guidance on the new Equalisation Levy
Blog: NASSCOM Official Blog
Equalisation Levy (“EL”) was introduced in India vide Finance Act 2016, subsequent to Final Report of Organisation for Economic Co-operation and Development (“OECD”) dealing with tax challenges of the Digital Economy. The scope of EL introduced in 2016 was limited. It applied only on certain ‘specified services’, i.e. online advertisement and any provision, facility or service for digital or online advertising. The focus of this EL was on B2B transactions and the levy applied only if aggregate amount received/ receivable by Non-Resident (“NR”) service provider exceeds INR 100,000 in a financial year. Resident or NR having Permanent Establishment (“PE”) in India were required to withhold EL @ 6%.
The latest amendments to the EL provisions represent a significant increase in the scope of levy.2 Now, EL @ 2% is applicable on consideration received/ receivable by non-resident e-commerce operators on e-commerce supply or services made or provided or facilitated by it, effective April 1, 2020. EL also applies on transactions that involve a person buying goods/ services/ both using an IP address located in India. Lastly, the EL now applies to both B2B and B2C transactions.
Unlike the earlier EL where resident payer was responsible to deduct and pay EL to Government of India, the compliance obligation in the new EL is to be discharged by e-commerce operators (non-resident) on a quarterly basis along-with an annual return.
Given that India is engaged in OECD led discussion to arrive at global consensus on the approach to tax digital economy, unilateral measures like EL lead to multiple layers of taxation for the same income with no benefit of credit, thus increasing the cost of doing businesses.
The new EL provisions have raised several concerns and interpretational challenges for the E-commerce industry. These concerns and challenges have made it difficult for the industry to comply with the provisions. Without appropriate clarifications, it is also difficult for the industry to make requisite changes to the billing / IT systems and terms of contract with the third parties.
In this regard, NASSCOM has made a representation to Ministry of Finance highlighting issues where clarification/ guidance is required from the Government. Amongst other recommendations, we have requested MoF to consult the Industry as part of the process of addressing these issues.
Copy of our representation is attached for your reference.
Please write to tejasvi@nasscom.in for any feedback/ query.
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