Mumbai: The committee report on taxation of e-commerce made public on Monday has highlighted a slew of online IT services that can be brought under the “equalisation levy,” a new tax that stands introduced in the Union Budget for 2016-17 on companies which advertise on online and digital platforms abroad.
Equalisation levy is the tax imposed on payment made to a provider of services abroad to neutralise the disadvantage that a domestic service provider might face. The levy is to be imposed on the total payment made to the offshore service provider. For online advertising, the levy proposed in the Budget for the new financial year has been kept at 6 per cent.
In order to extend the ambit of the new tax, the budget has also kept the option open to extend this levy to other services.
The report of the committee, headed by the senior official of the central board of direct taxes (CBDT) and presented to finance Minister Arun Jaitley ahead of the budget, had proposed an equalisation levy of 6-8 per cent. The services it sought to bring under the tax are mostly related to the information technology sector.
According to the report, services that can be subject to the levy include designing, creating, hosting or maintenance of websites, digital space for website, e-mails, online computing, online content or any other online facility. It also flagged services like online collection or processing of data related to online users in India, collecting online payments, development or maintenance of participative online networks and online software applications, online search, online maps or GPS applications.
The report confined the tax jurisdiction to services that companies abroad provide to Indian firms and not directly to consumers. So, downloading music, books or availing other services from sites that are not based in India would remain out of the equalisation levy.
The report has not even recommended anything on taxation of goods that cross borders through e-commerce. For goods ordered through e-commerce platforms from overseas by individuals, there are already rules according to which import levies are imposed. Bigger imports by companies are also taxed under the existing customs rules.
According to the report, the equalisation levy is in line with OECD suggestions on ‘base erosion’ and ‘profit shifting’. These were drafted as a guide to put in place systems to deal with tax evasion at the global level.
As the equalisation levy is not imposed on income, any country that imposes the tax will not have to bother about the limitation imposed by any double-taxation avoidance agreement.
“Equalisation levy has been so designed that deals with the challenges of taxing digital economy without dealing with the complexities involved like determination of nexus, characterisation of payments and attribution of profits. With the committee report clarifying the characteristics of equalisation levy, we shall surely witness growth and expansion of the Indian digital industry,” managing partner at tax consultancy firm Nangia and Co Rakesh Nangia said.
