Govt: Rules Out FAQ on Equalization Levy

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In India, the equalization levy was introduced in 2016 to tax the digital transaction, which is the income acquiring to the foreign e-commerce companies from India. This system has given rise to various new business models, where there is a heavy reliance on digital and telecommunication networks. The equalization levy is a direct tax that is withheld at the time of payment by the service recipient. The government recently has ruled out coming out with an FAQ on the newly introduced 2 percent tax on the non-resident e-commerce companies by saying that the law passed by the parliament is very clear.

The 2 percent Equalization Levy was introduced in the 2020-2021 Budget and came into force from 1st April 2020 and the tax would be levied based on consideration received by non-resident e-commerce operators from the online supply of goods or their services. The due date regarding the payment of the first installment of the tax was 7th July. An e-commerce supply or service indicates the online sale of goods owned by the e-commerce operator or any provision of service provided by them or both sale of goods or provision of service facilitated by the e-commerce operator. Due to the demand that arises from several tax experts, the tax department comes out with a Frequently Asked Questions (FAQ) for clarifying the doubts relating to the levy. Mr. Ajay Bhushan Pandey, the Finance Secretary said that FAQs are issued where they have to explain to somebody who is not familiar with tax laws and also they try to explain in simple words.

 He added to his statement during the Federations of Indian Chamber of Commerce and Industry (FICCI) event that the law is clearly defined and if we focus on the entire digital tax law, they are not very long or even complicated. For every company that deals with the digital tax have their tax advisors, so they can make their own interpretations and can arrive at a decision. So superimposing something which has been approved by the Parliament by the way of saying something like FAQ is not a very good practice. The equalization levy was introduced by the Finance Act 2016at the rate of 6% on payments for the digital advertisement services which is received by the non-resident companies without a Permanent Establishment (PE) if it exceeds Rs. 1 lakh a year. The Budget 2020-2021 expanded its wide scope to include consideration received by the non-resident e-commerce operators from the supply or services of e-commerce. The rate has been set at 2% as applicable.

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