Govt puts digital services industry in a fix; imposes 2% additional levy on foreign e-comm firms

The Finance Act 2020 was notified by the Ministry of Finance after receiving the President’s nod last week and will be effective from today, April 1. Through amendments made to the Finance Bill 2020, the government has extended the scope of equalisation levy on e-commerce businesses while the industry is struggling to stay afloat amidst the COVID-19 crisis. 

The announcement has the industry up in arms as it would add pressure to the e-commerce and digital services industry which already stressed due to the global pandemic. Reportedly, multinational tech firms including Google and Facebook are lobbying together to seek deferment of at least six months on paying the additional levy. 

Internet and Mobile Association of India (IAMAI) which represents the digital services sector in India reflected grave concern on the unexpected imposition of new levy citing that the industry stakeholders were not consulted regarding the move. 

“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,” IAMAI said.

As per Section 165A of Finance Act 2020, an equalisation levy of 2% shall be charged on all the sales of goods and services by a foreign e-commerce operator to any Indian resident; non-residents under ‘specified circumstances’; any person who buys such goods or services using an IP address located in India. 

The specified circumstances include the sale of advertisement which targets a customer who is an Indian resident or any customer who accesses the advertisement through an IP address located in India and on sale of data collected from an Indian resident or from a person who uses an IP address located in India.

However, the equalisation levy shall not be charged if the e-commerce firm facilitating the supply or services has a permanent establishment in India or its sales, or gross receipts from the supply are less than Rs 2 crore in a year. This rules out bigwigs such as Amazon which have a permanent physical presence in the Indian market.

The equalisation levy was first implemented by the government in June 2016, under which a levy of 6% was charged on the sales of online advertisement services by a non-resident provider to an Indian resident. 

It was put in place to tax companies such as Google, Facebook, Twitter, and other foreign digital advertisers who were cashing on the Indian internet boom by selling space digital ads on their platforms.