Equalization Levy On Ecommerce Poses Challenges For Sector: IAMAI

As the dependency on the ecommerce industry increases amid the coronavirus pandemic, the Internet and Mobile Association of India (IAMAI) has raised concerns about equalization levy put in place by the government for the new financial year.

The equalization levy will come into effect with the new fiscal year, FY21, starting from today (April 1, 2020). Under this, ecommerce companies without a permanent establishment in India will have to pay an equalization levy of 2%.

This directly impacts ecommerce giants Amazon and Flipkart in India. IAMAI has reached out to the government on this matter on behalf of the sector at large. The organisation claimed that the original budget speech by the finance minister did not have any such suggestions. However, this was included in the Finance Bill, adopted by parliament on March 23, which imposes this levy effective from April 1, 2020, thereby barely giving 7 days’ notice to the sector for implementing this levy.

The association has appealed to the government to desist from imposing this levy at present and requested for wider stakeholder consultation on the matter.

IAMAI said that equalization levy comes at a time when ecommerce services incidentally are expected to play a critical role in abating the pandemic crisis. IAMAI said it would like to highlight the several operational and logistical challenges still plaguing the sector despite the sector supposedly being exempted under the present lockdown.

“This sudden imposing of an additional levy at such times will only make matters worse, as it will require businesses to make complicated changes to their internal systems, accounting and billing mechanisms in such short notice, that too in such challenging times of lockdown and work from home, which makes it all the more arduous,” it said.

The levy was earlier applicable only to digital advertising players such as Google. It was in the context of the ongoing BEPS negotiations under the OECD. The BEPS discussions have come a long way beyond that, and the discussion initiated by CBDT on a new formula for denoting virtual Permanent Establishment (PE) and Profit Attribution are a logical extension of the global process.

Thus, IAMAI claims that a sudden imposition of EL suggests reversing the process and this raises grave concerns amongst the digital industry about the future of taxation regimes in India for digital service providers.