In 2016, equalisation levy at the rate of 6 per cent was introduced on online advertisement services
Several foreign digital companies
may fail to comply with the July 7 deadline for the first instalment of equalisation levy, or the Google tax, as they are still waiting for clarifications from the government.
The income tax department
on Saturday notified modifications in the equalisation levy
form, called challan ITNS 285, to facilitate payment for the newly-introduced 2 per cent levy on the foreign e-commerce operators such as Amazon, Netflix, and Uber etc. This left the companies with barely two working days to comply with the deadline.
Despite the notification, the operators are struggling with issues, including forex conversion rates to be used for payment and obtaining permanent account number (PAN). Besides, there is a lack of clarity over determination of value of consideration for applicability of the equalisation levy, especially where income is miniscule, compared to the transactions facilitated by the digital operators.
E-commerce companies that fall under the equalisation levy
scope also include Adobe, Uber, Udemy, Zoom.us, Expedia, Alibaba, Ikea, LinkedIn, Spotify, and eBay.
The companies and tax consultants are pinning hopes on the possible last-minute relaxation in the deadline of filing the forms or waiver of interest and penalty by the government. The Centre is yet to release the much-awaited list of ‘frequently asked questions’.
The government through the Finance Act, 2020, imposed a 2 per cent digital tax on trade and services by non-resident e-commerce operators with a turnover of over Rs 2 crore, expanding the scope of equalisation levy, which till last year only applied to digital advertising services. The new levy came into effect from April 1.
In 2016, the equalisation levy
at the rate of 6 per cent was introduced on online advertisement services. The government had garnered around Rs 1,000 crore from the levy in 2018-19.
“In the absence of detailed FAQs on the equalisation levy, non-resident digital companies
are facing confounding issues such as forex conversion rates to be used for payment, determination of value of consideration for applicability of equalisation levy etc,” said Sandeep Jhunjhunwala, Partner, Nangia Andersen LLP.
This hassled move could cause considerable challenges in discharging the nearing first payment liability of equalisation levy, in case interest and penalty for delayed payments are to be avoided, he said.
Late payment of the equalisation levy attracts interest of 1 per cent per month and penal consequences of up to the value of equalisation levy could be imposed.
The tax department has made quotation of PAN mandatory for compliance, leaving the companies in a fix.
“This has rather imposed an onerous and challenging task for non-resident e·commerce players to apply for and obtain PAN within one business day in the midst of curbs, lockdown, and pandemic-affected business life. They also have to organise the mode of payment through an Indian bank account or debit card issued by an Indian bank,” said Jhunjhunwala.
Amit Maheshwari, partner AKM Global, said even transactions between non-residents were covered, which seemed to be an extra territorial overreach along with practical difficulty in implementation.
“The levy has several issues that primarily include very wide coverage (even non e-Commerce companies could be covered). The industry is grappling with these issues and has caused much uncertainty on how to comply,” he said.
The expansion of equalisation levy to e-commerce operators has invited the Section 301 investigation by the US, which has termed the tax ‘discriminatory’ against American companies.