March 22, 2016
A committee on taxation of e-commerce has recommended an equalisation levy, also announced in the Budget, on certain digital transactions like online marketing & advertisements, website designing, cloud computing etc. The committee recommended 6-8 per cent levy on business-to-business digital deals.
The ambit of the equalisation levy on e-commerce transactions can be expanded in the coming years to include downloading of songs, movies and books, online consumption of news, software downloads and online sale of goods and services, the committee has suggested. The suggestions of the panel were made public on Monday.
For now, the levy is proposed for business-to-business transactions and not on direct sales to customers.
“With the advent of digital economy, it poses its own challenge on taxation of such (e-commerce) transactions, unlike the brick and mortar models where the tax laws have evolved over time,” said Vikas Vasal, Partner – Tax, KPMG in India.
Globally, taxation authorities are contemplating measures to bring these transactions under the tax net. In India too, it has been a matter of debate and litigation, especially in cases where the foreign company does not have a permanent establishment and enjoys treaty protection.
The government had in the Budget announced a new equalisation levy of 6 per cent to be deducted for payments made to non-residents for specified services such as online advertisements.
Also called the ‘Google tax’, it has been structured in such a way as to ensure that every entity making a payment to a non-resident for online advertisements will have to deduct this tax before making the payment.
“India has taken a lead in taxing digital economy,” said Shefali Goradia, Partner, BMR & Associates LLP.
Rakesh Nangia, managing partner, Nangia & Co said, “Though the committee had recommended various services to be defined as specified services on which ‘equalisation levy’ shall be imposed, only online / digital advertisement made it to the Budget proposal.”