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The government’s move to expand the scope of the equalisation levy is ill-advised. A global consensus on taxing the growing digital economy, much of it without any physical presence where they generate revenue and profit, is expected this year, with the US, under the new administration, being ready to engage on the subject. Till then, India would do well to persist with the levy as it stands. A global agreement would benefit India, and possibly obviate the need for the equalisation levy charged on online ad payments to foreign entities and on non-resident ecommerce operators without a permanent establishment here.
The government has retroactively amended the law to cover activities under ecommerce supply or service, attracting the 2% equalisation levy. These include acceptance of an offer for sale, placing of a purchase order, acceptance of a purchase order and supply of goods or provision of services partly or wholly. This means even physical supplies of goods and services may attract the levy if any of these activities has taken place online. However, royalty payments for software transactions or fees for technical services will not attract the levy. This is logical as these payments attract tax under the Income-Tax Act. Retroactive amendments, though, are wholly avoidable.
The Organisation for Economic Cooperation and Development’s (OECD) proposed new framework to tax the digital economy estimates a hefty over $100 billion a year of additional corporate profits being available for taxation in jurisdictions such as Europe and India. India, an active participant in the global venture to end base erosion and profit shifting by multinationals, should focus on getting a larger share of the pie when the new deal is struck.
Courtesy - The Economic Times.
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