Equalisation Levy Not Discriminatory Towards American Companies, says India Commerce Secretary

Commerce Secretary Anup Wadhawan said on Wednesday that India does not agree with the United States Trade Representative (USTR) report which has called India’s 2% equalisation levy on non-resident ecommerce operators as discriminatory towards American companies. 

Last month, the USTR report, in its findings, had said that India’s 2% equalisation levy is discriminatory towards companies based in the US. 

“Basically, if there is an economic benefit from a certain jurisdiction then there has to be some taxation in that jurisdiction. The OECD (Organisation for Economic Co-operation and Development) is also moving in that direction that if you have an economic presence and economic gain, then you must have taxation in that jurisdiction. You have billions of dollars of revenue in a certain jurisdiction, you have to pay taxes,” Wadhawan told reporters when asked about his views on the USTR report. 

The equalisation levy, also known as ‘Google Tax’, is seen as an effective measure for taxing ecommerce companies which have a presence in India, but by billing their customers from offshore units, escape the purview of the country’s tax regime. Details of the levy were part of the Finance Bill, proposed along with the Union Budget 2021. 

India has often defended the levy, saying that it ensures a level playing field where both local ecommerce players, their smaller sellers, and multinational marketplaces can make the most of the online opportunity in the country. India has said that the levy works well for taxing foreign companies which aren’t domiciled here, but whose operations are closely intertwined with the Indian supply chain.

In the Finance Bill, 2021, the Indian government clarified that transactions involving royalty or fee for technical services, will remain taxable at 10% under the Income Tax Act and no further equalisation levy of 2% on the consideration amount will be charged. 

The levy is applicable on all transactions involving ecommerce supply of goods or services, where a non-resident ecommerce operator receives payment from a customer based in India. The levy is placed on the gross amount of the transaction, and not just on the facilitation fee, as several firms had requested the Indian government last year. Further, the levy will apply, regardless of whether the non-resident ecommerce company receiving the consideration amount owns the goods or services, or is just facilitating the provision of goods and services to India-based customers.

The levy will apply to the ecommerce supply of goods and services by non-resident companies, on or after April 1, 2020. The clarifications made in the new bill will be included in the original Finance Act, 2020, once the bill is passed. The bill is expected to be tabled in the parliament between March 19 and 22, 2021.