A coalition of nine industry and trade bodies have written to Finance Minister Nirmala Sitharaman to delay the implementation of the ‘equalization levy’ on e-commerce companies by at least nine months.

These are: Allied for Startups, the Asia Internet Coalition (AIC), the Asia-Pacific MSME Trade Coalition (AMTC), the Australian Services Roundtable (ASR), DIGITALEUROPE, the Information Technology Industry Council (ITI), the Japan Electronics and Information Technology Industries Association (JEITA), the US Chamber of Commerce and the US-India Business Council (USIBC).

The levy, first introduced in 2016-17, is often referred to as ‘Google tax’ and was applied on payments for digital advertisement services received by non-resident companies without a permanent establishment (PE) here, if these exceeded ₹1 lakh a year. The companies using these services are required to withhold the tax amount.

In the 2020-21 Budget, the government widened the ambit of the levy by including e-commerce companies. The applicable tax rate is two per cent (plus a surcharge) on amount of consideration received/receivable by an e-commerce operator. This expansion has come into effect from April 1, which nine associations want to be delayed amidst the ongoing discussion in the Organisation for Economic Cooperation and Development (OECD).

‘Timeframe limited’

In a letter, they acknowledged that the priority of the Indian government and of governments around the world must be to mount the strongest possible economic and public health response to the outbreak of Covid-19. However, they noted that the limited timeframe within which India’s expansive new levy was approved and took effect allowed for neither a dialogue nor significant structural changes necessary for the broad range of impacted firms to effectively implement the measure.

“A delayed implementation would permit such a dialogue to take place and would play a meaningful role in ensuring that the Government of India can most effectively and equitably achieve its policy objectives,” wrote the associations, which represent a wide range of companies, from multinationals to infant start-ups. Furthermore, a delay would underscore India’s continued support for the ongoing, multilateral negotiations at the OECD on the taxation challenges arising from the digitalisation of the global economy.

The OECD released a consultation paper on the subject last November. Though the broad contour appears to have taken shape, consensus is yet to emerge on the approach for taxing the digital transaction.

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