CMA Deepak Bhardwaj
The Central Board of Direct Taxes (CBDT) has notified the rules for equalization levy and said the tax will come into force from June 1.
Introducing equalisation levy separately under Finance Act and not incorporating it as a part of the existing Income Tax Act.
In order to tap tax on income accruing to foreign e-commerce companies from India, the Finance Act 2016 said a person making payment to a non-resident (who does not have a permanent establishment) exceeding in aggregate Rs 1 lakh in a year will withhold tax at 6 per cent of gross amount paid, as equalization levy also popularly known as Google Tax.
As per the BEPS action plan, OECD has recommended to impose a final withholding tax on certain payments for digital goods or services provided by a foreign e-commerce provider or imposition of a equalization levy on consideration for certain digital transactions.
Considering that all the operational aspects have been addressed, once the provision for equalization levy is brought in force, the payers would require to be mindful of the compliances with equalization levy in relation to payment towards online advertisements.
Last month, Internet and Mobile Association of India (IAMAI) had said that levy on online advertisement revenue of foreign companies would “severely raise the cost of doing business” for Indian tech startups.
The Committee on Taxation of E-commerce set up by the CBDT in its report submitted to the government in February had suggested introduction of equalization levy between 6-8 per cent on amount paid to non-resident by an Indian resident for specified digital services.
The specified services would include online advertising or any services, rights or use of software for online advertising, including advertising on radio and television, designing, hosting or maintenance of websites, digital space for website, e-mails, blogs, facility for online sale of goods or services or collecting online payments.
The government has found a way to indirectly tax companies such as Google and Facebook, a development which could set the stage for taxation of cross-border digital transactions and potentially drive up costs for advertisers. Instead of a straight tax on digital advertising platforms, the government has come up with what it calls an “equalisation levy” of 6% on the fees that advertisers pay. The ‘equalisation’ happens because the government is supposedly evelling the playing field and making companies such as Google and Facebook pay for the money they make from local advertisers.
The nub of the issue is that multi-national digital platforms don’t have “permanent establishments” in the country, which would make them liable to pay tax in India. And they cannot also be double-taxed, which means that the government has had to find a way of earning something from the profits that these platforms have been making.
