Equalisation Levy on e-commerce Companies may be Deferred to Second Half of FY 2020-21

The Finance Ministry is considering the deferment of the ‘Google Tax’ (technically known as equalisation levy) on e-commerce companies by up to six months during the current fiscal. This levy came into effect from April 1.

The Finance Ministry has received several representations seeking relief from this levy. “It is being contemplated to give certain relaxation to e-commerce companies,” a source said. Once decided, it would be in line with most income tax-related compliance timelines, the source said.

The levy, first introduced in 2016-17 and was applicable to payments for digital advertisement services received by non-resident companies without a permanent establishment (PE) here, if these exceeded ₹1 lakh a year. Rate of tax for this purpose is 6 per cent. The companies using these services are required to withhold the tax amount.

In the 2020-21 Budget, the Government widened the ambit of the levy by including e-commerce companies. The applicable tax rate is two per cent (plus a surcharge) on amount of consideration received/receivable by an e-commerce operator.

Last month, a coalition of nine industry and trade bodies, representing a wide range of companies, from multi-nationals to infant start-ups in India and across the globe, wrote to Finance Minister Nirmala Sitharaman to delay the implementation of the ‘equalisation levy’ on e-commerce companies by at least nine months. They acknowledged that the priority of the Indian government and of governments around the world must be to mount the strongest possible economic and public health response to the outbreak of Covid-19. However, they noted that the limited timeframe within which India’s expansive new levy was approved and took effect allowed for neither a dialogue nor significant structural changes necessary for the broad range of impacted firms to effectively implement the measure.

“A delayed implementation would permit such a dialogue to take place and would play a meaningful role in ensuring that the Government of India can most effectively and equitably achieve its policy objectives,” they wrote. Furthermore, a delay would underscore India’s continued support for the ongoing, multilateral negotiations at the OECD (Organisation for Economic Co-operation and Development) on the taxation challenges arising from the digitalisation of the global economy. The OECD released a consultation paper on the subject last November. Though the broad contour appears to have taken shape, consensus is yet to emerge on the approach for taxing the digital transaction.