Sudden Imposition of Equalization Levy on E-Commerce Is a Shock

The sudden imposition of Equalization Levy (EL) on e-commerce services without the Permanent Establishment in India is a shock for the sector, especially in such challenging times, according to the Internet and Mobile Association of India.

IAMAI, which represents the digital services sector in India, has reached out to the government on this matter on behalf of the sector at large.

The association expressed anguish over the fact that the original budget speech by the Honourable Finance Minister did not have any such suggestions. Since mid of March, the entire sector was caught up in the impending challenge of COVID-19 and the restrictive counter-measures much like the rest of the economy.

The Finance Bill which was finally adopted by Parliament on 23 March amidst this chaos suddenly imposes this Levy effective from 1 April 2020, thereby barely giving 7 days’ notice to the sector for implementing this levy.

The EL comes at a time when e-commerce services incidentally are expected to play a critical role in abating the crisis. IAMAI would like to highlight the several operational and logistical challenges still plaguing the sector despite the sector supposedly being exempted under the present lockdown.

This sudden imposing of an additional levy at such times will only make matters worse, as it will require businesses to make complicated changes to their internal systems, accounting, and billing mechanisms in such short notice, that too in such challenging times of lockdown and work from home, which makes it all the more arduous.

This will affect not only the operation of such services but also the well-being of the economy and society at large present banking on such services at times of dire essentials.

EL which was first introduced in 2016 for digital advertisement platforms, was in the context of the ongoing BEPS negotiations under the OECD.

The BEPS discussions have come a long way beyond that, and the discussion initiated by CBDT on a new formula for denoting virtual Permanent Establishment (PE) and Profit Attribution is a logical extension of the global process.

A sudden imposition of EL suggests reversing the process and this raises grave concerns amongst the digital industry about the future of taxation regimes in India for digital service providers.

The association has appealed to the Government to desist from imposing this levy at present and requests for wider stakeholder consultation on the matter.