The ambiguity has impacted compliance, with a 25 per cent drop seen in collections at Rs 236 crore as on July 20, compared to Rs 314 crore in the corresponding period last year, despite the expansion of the levy’s scope this year to include e-commerce players through the Finance Act 2020. Global majors like Facebook, Google, Amazon, Uber, Netflix
are covered under this.
India’s former chief negotiator on international tax, Akhilesh Ranjan, agreed with the foreign firms saying the law was “not clear at all” and that the government should clarify to ensure compliance. He favored issuing FAQs like the department did for laws like the Direct Tax Vivad Se Vishwas Act.
Finance Secretary Ajay Bhushan Pandey ruled out issuing FAQs at an event recently, arguing that the law was very simple and explaining tax liability in specific scenarios would be akin to issuing advance ruling, which doesn’t fall in the revenue department’s domain.
Ranjan countered this, saying there was still room to clarify. For instance, clarity is required on whether the levy is imposed on the gross amount received by the e-commerce operator or just the commission charged. Will income tax exemption on the amount covered under the levy apply in financial year 2020-21 (FY21)?
“We must help taxpayers compute what they are liable for. I am completely in favor of the equalisation levy. But only if the taxpayers know what they are liable for,” Ranjan said.
There is also ambiguity over the amount on which the levy has to be paid, especially when there is sale of goods.
While an e-commerce platform owner should ideally be liable to pay tax only on the fees it gets or on the service charge, the law seems to suggest that such an entity will have to pay on the entire sale. “It should be only the service component that he is performing. That should be made clear,” said another expert.
Citing an example, Amit Maheshwari, partner at AKM Global, said a non- resident e-commerce operator sold a laptop worth Rs 5 lakh to an Indian resident, charging a 5 per cent commission from its vendor, which was Rs 25,000. “In such a case it is unclear whether the 2 per cent levy would be charged on the entire Rs 5 lakh, or just Rs 25,000, as that is the income earned by the operator. A 2 per cent levy on Rs 5 lakh will be Rs 10,000, amounting to 40 per cent of his actual income, discouraging him from selling in India,” he said.
The definition of e-commerce operator is also blurry as the law takes it to mean a non-resident who owns, operates or manages digital or electronic facility or platform for the online sale of goods or provision of services or both. This makes the scope very broad, covering all online transactions, irrespective of whether it is a dedicated e-commerce marketplace or other non-resident goods or service providers, like online banking with foreign banks, foreign universities, research institutions, and even foreign stores.
“While I do not know the intent of the government here, I don’t think that we are trying to tax those people,” said Ranjan.
Maheshwari said a firm incorporated in Austria was providing IT services to its subsidiary in India. The consideration is paid by the subsidiary in accordance with the Transfer Pricing Principles.
“Here, it remains debatable as to whether the Austrian firm also qualifies as a non-resident e-commerce operator on account of simple provision of services to its associated enterprise through an electronic mode,” he said.
Countries like the UK, France, and Italy, that have introduced digital taxes have excluded non-resident service providers selling their own goods or services online, keeping the scope limited to e-commerce marketplaces or intermediaries.