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New Delhi introduced a two percent equalisation levy or digital services tax on non-resident ecommerce/ digital operators that do not have a permanent establishment in India.
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India has set 7th of every month post completion of each quarter as the deadline to pay up this levy.
Confirming CNBC-TV18's newsbreak, India on Friday said it stands firm on its decision to levy two percent digital services tax and justified its position by replying to the United States Trade Representative (USTR) as probe launched under Section 301 of the US Trade Act.
According to the written response by India, "In complete good faith and transparency, with a view to explain and clarify the underlying policy rationale and implementation of the equalisation levy. The levy does not discriminate against non-resident ecommerce operators."
"The underlying policy objective and application of India's equalisation levy, is to ensure that neutral and equitable taxation is applicable to ecommerce operators that are resident in India or have a physical presence in India and those that are not resident in India. The purpose is to ensure a level-playing field with regard to ecommerce activities undertaken in India," New Delhi said.
While regretting the initiation of Section 301 investigations of digital services taxes, India told the US that the levy imposed is as per provisions under BEPS norms. Also, the equalisation levy cannot be said to have extra-territorial application.
New Delhi introduced a two percent equalisation levy or digital services tax on non-resident ecommerce/ digital operators that do not have a permanent establishment in India. The levy was announced under Union Budget 2020 on February 1, however, the levy came into action from April 1.
India has set 7th of every month post completion of each quarter as the deadline to pay up this levy and has also already received the first quarter realisations on account of this levy by July 7.
Explaining the metrics, New Delhi said to the US, "The threshold application for the levy for companies with annual revenues in excess of Rs 20 million, is a low threshold aimed at exempting very small ecommerce operators globally. It does not discriminate against companies based in the United States as it applies equally to all non-resident ecommerce operators not having permanent establishment in India, irrespective of the origin of such companies."
New Delhi has also stated that the concept of equalisation levy in India emerged as a result of the deliberations of the OECD Base Erosion & Profit Shifting (BEPS) Project, which crystallized in the Report on Action 1 of BEPS Project.
"The BEPS Report on Action 1 was accepted by India and other members of the OECD, thereby representing a broad consensus view on the issues discussed in the report. This report formed the basis of detailed consultations by a Committee on Taxation of E-Commerce constituted by the GOI (“India Committee”), which had submitted its Report in February 2016."
Akhilesh Ranjan, chair of this committee on taxation of ecommerce and former member of Central Board of Direct Taxes reacting to India's response to US told CNBC-TV18, "The stand taken by India is appropriate and entirely correct. It clearly reflects the considered view of India that existing rules of international taxation have become obsolete in the new digitalised global economy. The equalisation levy is meant to assert India's taxing rights and seeks to provide a level playing field to residents and non-residents engaged in digitised businesses."
Meanwhile, India reassured US that the equalisation levy is entirely consistent with India's commitments under the WTO and international taxation agreements.
New Delhi has further gone ahead to share that the equalisation levy provides greater clarity, certainty and predictability with respect to taxation of digital service payments.
"Far from targeting any US company or companies, the purpose of the Equalisation Levy is to ensure greater competitiveness, fairness, reasonableness and exercise the ability of governments to tax businesses that have a close nexus with the Indian market through their digital operations," New Delhi added in the concluding remarks.
Further, New Delhi said it will be happy to respond further if required to provide any clarifications as may be required by the USTR in these proceedings or in bilateral discussions under Section 303(a) of the United States Trade Act, 1974.
Experts have hailed New Delhi's response and feel that clarity on digital taxation is the way forward but also fear retaliation from US.
Sandeep Jhunjhunwala, partner, Nangia Andersen LLP said, "The response filed by the government of India addressing all aspects of investigation makes it evident that there is no intention to defer or rescind the provisions governing this levy. However, the authorities may provide necessary clarifications and resolve persisting ambiguities. The current pandemic has, on one hand, triggered a boost to the digital sector sales and on the other hand, has forced Governments to reach deep into their pockets and find new ways of generating revenue."
"In this scenario, imposing a digital tax may ease the burden on the Government treasury in the short run. But, India is not alone in levying such a tax, multiple European and Asian countries have now implemented a similar levy. Lately, even New York Senate has introduced digital advertising tax bill. US being the command post of the largest tech giants has been facing the strongest impact of one-sided digital tax by multiple countries across the world. Although, the Trump Administration has not dithered from making punitive pronouncements and implementing retaliatory measures like imposing trade restrictions and additional tariffs on few countries, it may not be a resolution to the problem at hand. With the global economy slipping into recession, it is more imperative than ever for countries to work cohesively and avoid taking confrontational unilateral actions," Jhunjhunwala said
Expressing similar views, Amit Maheshwari, partner at Ashok Maheshwari & Associates LLP, a tax compliance and regulatory firm said, "As expected, the government of India has strongly defended its action to introduce equalization levy on non-resident e-commerce operators. The government believes that the levy is consistent with India's commitments under WTO. Indian government has taken defended its action citing lack of consensus to tax digital economy at OECD and also the famous US Supreme Court decision of Wayfair Inc. They have also stressed that the levy is not retrospective and non-discriminatory and in facts creates a level playing field between resident and non-residents. I think the problem in the levy is the wide coverage and lack of industry consultation which has caused several issues."
Let's see how much this response would cut ice with the US which very recently slapped tariffs on France for this kind of levy.
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