Ecommerce Firms, Global Tech Giants Recommend Changes In India’s Digital Tax

Ecommerce companies, tech giants and digital services providers, based outside India but with a presence in the domestic market, have reached out to the Central Board of Direct Taxes (CBDT) with their suggestions regarding the equalisation levy imposed on them by the Indian government. Companies like Airbnb, Booking.com, Agoda, Zoom, GoDaddy, Tencent, Expedia, Google, Facebook, Netflix, and others wrote to CBDT sharing their thoughts on the proposed level

As per a CNBC report, the companies are seeking clarity on whether the levy covers software subscriptions, refund mechanisms for the equalisation levy, determination of the residential status of customers outside India, credit claims, valuation mechanism for user data based on which the levy is applied and more. In a representation sent to CBDT, ecommerce companies have asked the department to impose the 2% equalisation levy only on the facilitation fee the companies generate out of a transaction arising out of India, instead of on a full transaction as has been decided under the new rules that went into effect in April 2020. They added that only these transactions should be treated as their turnover.

“Also, the one year gap between enforceability date and income tax exemption availability, plus the constitutional validity of taxing transactions between two non-residents, as a complete offshore transaction and in absence of nexus with India, are in itself not free from doubts,” Sandeep Jhunjhunwala, director at consultancy firm Nangia Andersen, was quoted as saying.

As per an ET report, ecommerce companies have also recommended that the equalisation levy should not be imposed on services or goods that are executed online but delivered offline. This would include online hotel booking, air ticketing, and heavily regulated financial services. Moreover, they have also sought clarity on the definition of online sale of goods, services, and digital/electronic platforms.

The representation also suggested that the tax authority should consider imposing equalisation levy on ecommerce supplies or sales made after April 1, 2020, the day 2% equalisation levy came into effect. In the update, the government has widened the scope of the 2% equalisation levy to include the consideration that ecommerce companies get from transactions from India. The government had first imposed a 6% equalisation levy on international digital services and internet operations in 2016.

Last week, even the US authorities had cautioned India against the implications of any digital tax, popularly known as Google Tax, or equalisation levy imposed on the ecommerce companies. They had highlighted that the current tax structure goes against the internationally accepted principles, which state that the mechanisms for digital transactions should be developed on a multilateral basis to prevent double taxation.