Current Affairs Brain Booster for UPSC & State PCS Examination

Topic: India's Equalisation Levy

Why in News?

• The United States Trade Representative (USTR) has termed India’s Equalisation Levy (also known as Google Tax) on e-commerce companies as ‘discriminatory’. India, however, has said that it is not discriminatory and it would take appropriate action in the matter keeping in view the overall interests of the nation.

US Objections

• The office of the USTR said that its investigation has led it to conclude that the tax was discriminatory because it exempts Indian companies and targets non-Indian firms. This hits US firms which dominate the technology industry.
• The USTR pointed out that of the 119 companies that it identified as likely liable under the digital services tax, 86, or 72%, were American.
• India promised “appropriate action" after a USTR investigation report said New Delhi’s 2% tax on the digital economy is “unreasonable or discriminatory", potentially attracting withdrawal of US trade concessions or duties on Indian exports.

Genesis of the Levy

• The concept of the equalisation levy in India emerged as a result of the deliberations of the OECD Base Erosion & Profit Shifting (BEPS) Project, which crystallized in the Report on Action 1 of BEPS Project.
• It formed the basis of the detailed consultations by a Committee on Taxation of E-Commerce constituted by the Indian government, which had submitted its report in February 2016.
• This committee analysed in detail the BEPS report on Action 1, which had highlighted the need for modifying existing international taxation rules, and laid out three options for the consideration of countries, that is, (a) a new nexus based on significant economic presence, (b) a withholding tax on digital transactions, and (c) equalisation levy.
• The Indian government panel accordingly analysed each of the three options presented by the BEPS Report and recommended the application of the equalisation levy on specified digital services.
• Apart from India, the others that are being investigated are the EU, the UK, Austria, Brazil, the Czech Republic, Indonesia, Italy, Spain and Turkey.

Roadmap in India

• Realising the fact that India was losing out on revenue from digital firms billed overseas, the government in June 2016 introduced a 6% tax in the form of an equalisation levy or known as Google tax on the amount paid to internet companies by advertisers.
• In the Union Budget 2018-19, the government also proposed to amend the Income Tax Act to tax digital entities with a large user base or significant economic presence in the country.
• In fiscal 2018, Google India reported a 30% increase in revenues to Rs 9,337.7 crore with profit after tax rising 33% to Rs 407.2 crore. The amount transferred for “purchase of advertising space”, increased by 36% to Rs 4,949.6 crore, according to regulatory filings.
• The government’s push for internet companies to host data of Indian users in local servers is due to data security and privacy and also due to concerns that they deliver services mostly from overseas, outside India’s tax jurisdiction.
• The latest impost was introduced in the Finance Act, 22020 by widening the scope of the equalisation levy to include e-commerce players and intermediaries. It’s a sort of digital tax on non-resident e-commerce operators at 2% on the revenue they generate in India from e-commerce supply or services. This levy has to be deposited by the e-commerce operator and not by the buyer of the goods or service.

Countries opting for GAFA Tax

• Columbia University economics professor Joseph Stiglitz, a Nobel laureate has highlighted that the pandemic ironically has helped the very companies that have been the tax avoiders i.e. the internet companies.
• The Frence and many Latin American nations have imposed such taxes. European Union is also mulling to introduce a series of such taxes on digital companies.