The Finance Minister, Nirmala Sitharaman, has introduced ‘Notice of Amendments’ to the Finance Bill, 2021 in the Lok Sabha on 22nd March 2021. The finance bill 2021 has been passed by the Lok Sabha with all the changes on 23rd March 2021.
In a bid to provide a level-playing field, the government has decided not to levy a 2% digital service tax if goods and services are sold through the Indian arm of foreign e-commerce players.
“Equalization levy is a tax which has been imposed to give level-playing field between Indian businesses who pay tax in India and foreign e-commerce companies who do business in India but don’t pay any income tax here. We are only trying through the equalization levy to treat everybody who is operating in India equally. If the foreign e-commerce companies pay income tax here then the equalization levy is not applicable to them. Hence there is no extra burden on any company,” Nirmala Sitharaman said.
The Amendment To Finance Bill 2021
According to the bill, offshore e-commerce platforms don’t have to pay a 2% equalisation levy if they have a permanent establishment or they pay any income tax here. However, foreign companies who are not paying any tax will have to pay.
The digital tax, which will be implemented in April 2020, will apply only to non-resident companies with annual revenues exceeding Rs 2 crore and will cover online sales of goods and services to Indians.
“Through the government amendment… I intend to clarify that this equalisation levy is not applicable on consideration for goods which are owned by Indian residents,” Finance Minister Nirmala Sitharaman had said why replying to a debate Finance Bill 2021 in Lok Sabha on Tuesday.
The US termed the equalisation levy as discriminatory against American firms.
Pointing out that this government is in favour of digital transactions, she said, “we will never do anything to undermine it. But yet, equalisation levy is a tax which has been imposed to give level playing field between Indian businesses who pay tax in India and foreign e-commerce companies who do business in India but do not pay any income tax here.”
The Objectives Of The Finance Bill 2021
India had said that the objective of the levy is to provide greater clarity, certainty and predictability in respect of characterisation of payments for digital services and consequent tax liabilities to all stakeholders, to minimise costs of compliance and administration as also tax disputes in these matters.
The equalisation levy is viewed as an additional safeguard against BEPS (Base Erosion and Profit Shifting) and revenue loss in India as a result of the activities of the country’s e-commerce operators.
The concept of equalisation levy emerged in India as a result of the OECD Base Erosion and Profit Shifting Project’s deliberations, which culminated in the BEPS Project report.
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