“Provisions pertaining to equalisation levy on e-commerce transactions, do not grant recourse to the tax authorities to recover taxes in case a non-resident e-commerce operator fails to pay the levy within prescribed timelines. Does it mean that no recovery of equalisation levy is possible from the e-commerce operator if he doesn’t discharge his liability?” a research by Dhruva Advisors pointed out.
The government had, in this year’s budget, increased the scope of the equalisation levy imposed on cross-border digital transactions in 2016 in a bid to tax the advertising revenue that the internet giants earn from India. It includes any purchase by an Indian or India-based entity through overseas ecommerce platforms with effect from April 1.
Tax experts said the main objective of the government is to tax the revenues of digital giants that earn billions from India. When companies pass on the tax to consumers, it ends up as an escalation of costs for Indians, with little impact on the revenues of the tech giants
“The provisions pertaining to equalisation levy on online advertisements (6%) specifically provides that in case the resident payee fails to deduct the equalisation levy, then it is still liable to deposit the same with the Central Government, irrespective of non-deduction,” Dhruva research said.
The research also pointed out that there is also no clarity around the time limit available for collection and recovery of equalisation levy, what the appeal options available to the taxpayer are and whether the taxpayer can approach authority of advance ruling (AAR) like in the case of other tax disputes.
“The provisions of the Act which provide for time limits for completion of assessment, recovery of taxes, etc. have not been imported in the equalisation levy provisions. Thus, if an order levying the charge of equalisation levy can be passed, the law currently does not prescribe a specified time limit for the same,” the research paper said.
There are set to be disputes as several companies are interpreting the regulations in a different manner. While large digital companies such as Apple, Netflix, Amazon and Google may opt to pay up the 2% equalisation levy, smaller players may take a different call.
Even the larger players are treating the equalisation levy applicability differently. Apple for instance has decided to pass on the 2% tax to its consumers; Netflix on the other hand has decided to absorb the cost.
The research paper also argued that more clarity is needed around how disputes would be tackled going ahead.
India and the US are working to resolve their differences over the equalisation levy. The US opposes it on the grounds of “fairness.”
India has responded by pointing out a US Supreme Court ruling that said the physical presence of an online company was not required for imposing tax in a particular location. Most of the big tech firms facing the tax in India are US companies.