NASSCOM's Point of View on Equalization Levy introduced vide Finance Act 2020

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NASSCOM's Point of View on Equalization Levy introduced vide Finance Act 2020

Tejasvi

@tejasvi

June 1, 2020

Public Policy

1922

Equalisation Levy (“EL”) was introduced in India vide Finance Act 2016, subsequent 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 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%.

Latest amendments to the EL provisions represent a significant increase in the scope of levy as it extends to non-resident e-commerce operators on e-commerce supply or services made or provided or facilitated by it, effective April 1, 2020. Further, the proposal for imposition of EL was not included in Union Budget 2020-21 unveiled in February 2020. Neither was this proposal discussed or debated in the parliament. Resultantly, the Levy was introduced and passed in both houses of the Parliament without any discussion. Further, given that India is engaged in OECD led process 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.

Based on inputs received from members, NASSCOM had submitted a detailed representation on the subject to Ministry of Finance. As part of our representation, we have detailed out issues/ grey areas in the EL provisions requesting MoF to provide Industry with the requisite clarifications as it will not be possible to operationalise the levy otherwise. We had also requested MoF to consult the Industry as part of the process of addressing these concerns.

After this, NASSCOM appraised the MEITY officials about its concern with the EL. Thereafter, to discuss the provisions in Finance Act 2020 pertaining to e-commerce sector including provisions of EL, a meeting was called by DPIIT, Ministry of Commerce & Industry. The meeting was attended by various Industry Associations and e-commerce companies.

During the meeting, we highlighted issues arising as a result of broad scope of EL and other aspects which require clarification from the government. These include clarity on the timeline of exemption under Income-tax Act, 1961, meaning & scope of ‘consideration received or receivable’, inter-play between withholding tax on royalty/ fees for technical services vis-à-vis EL, etc. We also highlighted that given the ongoing discussions of OECD to arrive at global consensus on the approach to tax digital economy, unilateral measures like EL will lead to multiple layers of taxation.

We had mentioned at the meeting that the enlarged scope of levy and above-mentioned issues require further guidance from the government, in order to be effectively implemented. Later some industry feedback suggested that this may have been understood as NASSCOM was in support of the levy. To address this, we have written an email to DPIIT officials submitting our detailed representation and specifically mentioning that due to the reasons cited in the meeting and COVID-19 disruptions, the levy is not in the interest of the industry or the consumers and should in-fact be reviewed.

We look forward to engaging with DPIIT and MoF on the issue of EL. We will keep you posted on further developments in this regard.

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Tejasvi

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