In today’s newsletter we talk about an extension of “Google Tax” also popularly known was “Equalization Tax”
Consider an e-commerce giant, headquartered abroad, and operating e-commerce websites across countries, including India. In India, the e-commerce company interacts with sellers and consumers digitally without maintaining any physical presence in India.
An Indian businessman enters into an agreement with the Company for advertising his products. As per Indian Tax Law, revenue earned by the foreign e-commerce company may not be subject to tax in India, as it does not have any physical presence in India, thus resulting in a loss of tax revenue for the Indian government.
Small Business is considered as the backbone of the Indian Economy and the creation of level playing field is important for SMB to survive in a competitive market and one company paying taxes up to 30% and foreign E-commerce Operator paying zero taxes. Is that Fair ladies and Gentlemen?
To prevent such practice Equalization Levy was introduced in India in 2016, to tax the digital transactions or advertising services at 6% and the government did manage to fill-up the coffers by around INR 4000 Cr since 2016
Well it was time for Taxman to Rejoice and in 2020 Budget, Taxman announced “Equalization Levy 2.0”
From April 01, 2020, EL shall be levied at 2% on consideration received or receivable by an e-commerce operator from e-commerce supply or services made or provided or facilitated to residents in India and to non-residents buying goods in India or nay transaction concluded through an IP in India
Ok let me simplify this, Effective from April 20, any sales made by foreign E-commerce Companies (Likes of Facebook, Microsoft, Amazon, Netflix…) to Indian customers or any bookings done in India will be taxable at 2 percent. This Act is going to hit all companies with sales more than 2 Crores
Equalisation Levy is a wild card entry into the Finance Act 2020 and has obviously taken the industry by surprise. Almost all leading digital players would need to evaluate the impact on their bottom line. The gap in understanding digital territories may open up a new dimension to disputes.
While digitalization has solved many business challenges, it has given rise to tax challenges, which appear to be far from being solved.
Well, clearly the burden will also be shared with the customers. Congratulation, Netflix just got costlier… Ewwww