The Central government has said that the equalisation levy is non-discriminatory and seeks to ensure a level-playing field between e-commerce activities undertaken by entities resident in India, and those that are not.
The development comes day after the office of USTR released its findings on the section 301 investigation into India’s digital Services tax (DST) and concluded that India’s DST – the equalisation levy – is discriminatory and restricts US commerce.
Last year, the US administration had announced initiation of investigation under section 301 of the US Trade Act, 1974 against the taxation on digital services adopted or under consideration by countries, including the ‘Equalisation Levy’ applied by India.
Other counties under investigation include Italy, Turkey, and the United Kingdom.
“With respect to India, the focus of the investigation was on the 2 per cent ‘Equalisation Levy’ (EL) levied by India on e-commerce supply of services,” an official communique said on Thursday.
“The US investigation included whether the EL discriminated against the US companies, was applied retrospectively, and diverged from US or international tax norms due to its applicability on entities not resident in India.”
As per the communique, the US administration requested for consultations, and India submitted its comments to the USTR on July 15, 2020, participated in the bilateral consultation held on November 5, 2020, emphasising that the EL is not discriminatory.
“It was also clarified that the EL was applied only prospectively, and has no extra-territorial application, since it is based on sales occurring in the territory of India through digital means.”
“India based e-commerce operators are already subject to taxes in India for revenue generated from Indian market. However, in the absence of the EL, non-resident e-commerce operators are not required to pay taxes in respect of the consideration received in the e-commerce supply or services made in the Indian market.”
According to the communique, the EL levied at 2 per cent is applicable on non-resident e-commerce operators, not having a permanent establishment in India.
“The threshold for this levy is Rs 2 crore, which is very moderate and applies equally to all e-commerce operators across the globe having business in India.”
“The levy does not discriminate against any US companies, as it applies equally to all non-resident e-commerce operators, irrespective of their country of residence.”
Besides, it said that there is no retrospective element as the levy was enacted before April 1, 2020 which is the effective date of the levy.
“It does not have extra territorial application as it applies only on the revenue generated from India. In addition, EL was one of the methods suggested by 2015 OECD/G20 report on ‘Action 1 of BEPS Project’ which was aimed at tackling the taxation challenges arising out of digitisation of the economy.”
Similar determinations have also been made against Italy and Turkey by USTR.
“The Government of India will examine the determination or decision notified by the US in this regard, and would take appropriate action keeping in view the overall interest of the nation.”