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Equalisation levy on foreign e-com firms

Topics Covered: Government policies and interventions for development in various sectors and issues arising out of their design and implementation.

Equalisation levy on foreign e-com firms

The government has said that it is not considering extending the deadline for payment of Equalisation Levy by non-resident e-commerce players.

What is Equalisation levy?

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 amendments to the Finance Act, 2020 had expanded the ambit of the equalisation levy for non-resident e-commerce operators involved in supply of services, including online sale of goods and provision of services, with the levy at the rate of 2% effective April 1, 2020.
  • The tax applies on e-commerce transactions on websites such as Amazon.com.

What was the need for equalisation levy?

The levy is seen aimed at taxing foreign companies which have a significant local client base in India but were billing them through their offshore units, effectively escaping the country’s tax system.

Penalty:

  • As per law, late-payment would attract interest at the rate of 1% per month or part of the month.
  • Non-payment could result in a penalty equal to the amount of equalisation levy, along with interest.

What are the issues now?

Tax experts point out that there are practical difficulties in getting PAN and many companies are not paying the equalisation levy as there is still considerable confusion and lack of clarity on the applicability of the same.

  • It is believed that the requirement of having a PAN and an Indian bank account could cause administrative delays in remittance by non-residents.

The levy has several issues that primarily include wide coverage (even non-e-commerce companies could be covered), 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.

  • Even transactions between non-residents are covered and this according to tax experts would be an extraterritorial overreach along with practical difficulty in implementation.

InstaLinks:

Prelims Link:

  1. Equalisation levy- when was it introduced, recent changes?
  2. Who is covered?
  3. Is it a direct tax?
  4. CBDT- composition.

Mains Link:

Discuss the need for and significance of equalisation levy.

Sources: the Hindu.