Equalization levy – Evolution from ‘Google tax’ to ‘Amazon tax’

Introduction:

Rapid penetration of information and communication technology (ICT) across world has led emergence of new business models. Physical presence is no longer necessary to conduct business in any part of the world. These new virtual business models have created new challenges for tax authorities which so far relied on concept of jurisdiction to tax business incomes.

To tackle this challenge, equalization levy was introduced via Finance Act, 2016. Over the past 5 years, this new tax has evolved as follows:

Introduced in 2016: Salient points

• Equalization levy at 6% would be taxed on any consideration received/receivable by a non- resident from:
  1. A person resident in India and carrying any business or profession
  2. A non-resident having PE in India.
• It was levied only on ‘Specified Service’ which meant online advertising or provision of digital space for online advertisement or any other service for purpose of online advertising.
• Burden to deduct and deposit tax placed on recipient of service.
• Not applicable if aggregate amount of consideration from a recipient does not exceed Rs. 1 lakh.

 

Scope expansion in 2020: Salient points

• Scope of equalization levy widened to include all e-commerce supplies and services.
• Equalization levy at 2% applicable on e-commerce supplies or service provided to Indian resident customers.
• E-commerce Supplies and service:
  1. Online sale of goods owned by the e-commerce operator;
  2. Online provision of services provided by the e-commerce operator;
  3. Online sale of goods or provision of services or both, mediated by the e-commerce operator;
  4. Any combination of above activities
• The compliance burden had shifted to E-commerce operator.
• Not applicable if aggregate amount of consideration for specified transactions do not exceed Rs. 2 crores.

Clarifications in Budget 2021: Salient points

• Consideration received or receivable for specified service or e-commerce supply or service shall not include consideration taxable as royalty or fees for technical service.
• Online sale of goods and online provision of service defined to include one or more of the following activities taking place online:

1. Acceptance of offer for sale;
2. Placing the purchase order;
3. Acceptance of the Purchase order;
4. Payment of consideration; or
5. Supply of goods or provision of services, partly or wholly

• For the levy of tax, consideration defined to include
  1. consideration for sale of goods irrespective of whether the e-commerce operator owns the goods; and
  2. consideration for provision of services irrespective of whether service is provided or facilitated by the e-commerce operator.
• However, 2% equalization levy need not be paid on that portion of goods which are sourced from India.

Equalization levy and other forms of digital taxes are trying to catch up with new business realities all over the world. Therefore, ambiguities and complexities in equalization levy are unavoidable for foreseeable future.

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