Companies fear that all kinds of online transactions including hotel bookings, software purchase and even buying certain components from overseas could come under the gamut of the 2% levy introduced this year due to the way the law has been worded.MUMBAI: The government is exploring changes to the equalisation levy, and may stop charging the tax on digital transactions either partially or in its entirety for a year as it works on the options, people with direct knowledge of the matter said.
The government is doing a cost-benefit analysis and has reached out to stakeholders to figure out if it needs to suspend or shelve the 2% equalisation levy imposed this fiscal year on any purchase by an Indian or India-based entity through an overseas ecommerce platform, they said.
Many Indian startups and stakeholders are also pushing to shelve or reduce the 6% equalisation levy, the so-called Google tax, charged on the advertising revenue that overseas companies such as Google, Facebook and Netflix generate from India. The burden of this tax eventually falls on the local startups and others who advertise on these platforms, as most digital majors pass on it to them. The government is looking at this as well.
Companies fear that all kinds of online transactions including hotel bookings, software purchase and even buying certain components from overseas could come under the gamut of the 2% levy introduced this year due to the way the law has been worded.
“The 2% equalisation levy in its current form is too widely worded, needs clarity and could be challenged as lacking constitutional validity as it brings thousands of transactions made online under its scope. The government needs to clearly decide what transactions it wants to tax or whether there is a need for this levy,” tax consultancy Dhruva Advisors’ chief executive, Dinesh Kanabar, said.
The government is also working on a cost-benefit analysis and exploring ways in which it can completely do away with the 6% equalisation levy, which is meant to target global digital companies that earn billions of dollars from India but do not pay any domestic tax, a person in the know of the matter said.
“For many Indian startups that work on thin margins or in boot strapped mode, paying 6% equalisation levy on top of the invoice value, when they transact with global digital companies, becomes an additional substantial cost,” said Sachin Taparia, the chairman of community social media platform LocalCircles. “At a time when all of these players are expanding their presence in India, it only makes sense to shelve the 6% equalisation levy, and instead make regulations to make sure global digital companies have Indian legal entities, invoice from here and pay GST and other taxes just like Indian companies,” he added.
Total online transactions on which 6% levy could be applicable is pegged to be around Rs 25,000 crore.
Insiders said that the government was analysing how much taxes it could collect if the global players were asked to have a base and data centres in India and invoice from their local offices. The government is also looking to introduce personal data protection Bill that would require these players to have their servers and data in India.
If these companies have an India presence, they could face both direct taxes like income tax and indirect taxes such as GST, and also on a much larger portion of their revenue. Most of them wouldn’t prefer this.
“In the past the government had created regulations whereby it had asked companies to bring data to India and create domestic entities. Whether the government takes that route or any other, more clarity around equalisation levy is essential,” said Kanabar of Dhruva Advisors.
Source: indiatimes.com
