Budget 2021: Clarification on equalization levy brings more companies, transactions under purview, says industry

By Mugdha Variyar

The government is proposing clarifications to the equalisation levy of 2 percent it had introduced for foreign ecommerce companies last year, stating that it applies even to companies that do not own the goods or provide the services on their platforms and if any part of the transaction is online, even if it's only an online payment. The government’s clarification also added that royalty and fees for technical services will be excluded from the levy.

The equalisation levy has been a controversial issue since the last union budget, and has also been referred to as 'discriminatory' by the US Trade Representative (USTR).

Industry body NASSCOM said the newly proposed clarifications and the scope of the definition entails that the equalisation levy will be applicable to all cross-border transactions.

The Finance Bill said that for the purpose of defining ecommerce supply or service, "online sale of goods" and “online provision of services” shall include one or more of the following online activities, namely: acceptance of offer for sale; placing of purchase order; acceptance of the purchase order; payment of consideration; or supply of goods or provision of services, partly or wholly.

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The bill also added that the income referred to in this clause shall not include

and shall never be deemed to have included any income which is chargeable to tax as royalty or fees for technical services in India.

The bill also proposes to amend the specific section to include consideration received by ecommerce supply or services irrespective of whether the e-commerce operator owns the goods, or whether the service is provided or facilitated by the ecommerce operator.

"The fact that clarification has come is good but some of clarification is negative... basically all sale of goods, services by foreign entities will be taxed as #EL.," Ashish Aggarwal, public policy head, NASSCOM tweeted.

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“The positive is that there is now clarity on who the equalisation levy is applicable to. The fact that royalty and fees for technical services is excluded is also a positive," Aggarwal told CNBC-TV18.

"But the clarification now means that the scope of the levy is wide and applies to all cross-border transactions by foreign entities (except royalty and technical services fees), because even if one part of the process, such as payment for the good or service is done online, it comes under the purview of the levy, be it a B2C or a B2B transaction," Agarwal said.

However, organisations such as Indiatech.org, which represents domestic companies, said the new clarifications will create a level-playing field between foreign and domestic companies.

"There is now clarity on applicability of the said levy on e-commerce entities- operating from outside India with no domicile in India. Now the levy clearly applies on the entire consideration," said Rameesh Kailasam, CEO, Indiatech.com.

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"The regulatory clarity brought in with regards to equalisation levy is a welcome step which substantiates IndiaTech.org’s asks for creating a level playing field for domestic and foreign e-commerce entities alike,” he added.

Many industry members and foreign entities had sought clarification on several aspects of the equalisation levy that came into effect on April 1, 2020, with the first instalment of the levy due on July 7, 2020.

The clarifications would be included once the Finance Bill is passed in the Parliament, which is expected between March 19-22.