Equalization levy resistance shows up BEPS’ challenges
The Internet and Mobile Association of India’s (IAMAI’s) pushback against the equalization levy on e-commerce transactions introduced in the union budget shows up the difficulty revenue authorities will have when they try to protect their tax base. The last word on this subject hasn’t been said and the original budget proposal on the levy may be tweaked when the finance bill comes up for passage in a few days.
India’s proposal to introduce an equalization levy of 6% on transaction consideration of services such as online advertising received by a non-resident was not sudden. It came out of the preparatory work done by OECD on Base Erosion and Profit Shifting (BEPS), which was an attempt to help countries protect their domestic tax base from globalization of business activities.
In India, the tax department has tried to ensure neutrality in taxation through this levy. In other words, a company located within India should not be at a disadvantage when it competes against a company which may be located in another part of world but carries on business in India digitally.
The word equalization, therefore, represents tax neutrality. It is meant to be levied on transactions and not income to sidestep international tax treaties.
IAMAI’s point is that the levy will be passed to Indian advertisers by the ad platforms. Therefore, instead of ensuring neutrality, it could add to the burden of domestic companies.
It is a tough call for the government. India is not alone in trying to protect its base. But the purpose of an equalization levy is lost if it ends up adding to the burden of domestic companies. BEPS in practice will be anything but easy.
