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Looking at the growth of the digital market and revenue collected by non-Indian E-commerce companies, the Indian government has decided to impose a 2% indirect tax on non-resident e-commerce companies. Previously, the government had put a 6% tax – called Google Tax – on advertisements on non-resident digital companies. But what does that exactly mean? And will the new tax, increase the price of your shopping cart? Let’s find out.
Crux of the Matter
Equalisation Levy The government of India introduced Equalisation Levy, or popularly called Google Tax in 2016. It is a direct tax that is withheld at the time of payment by the service recipient. A 6% tax was levied on the amount of advertisement hosted online. The criteria for charging this tax are: – The transaction must be Business-to-Business transactions – Payment is made to a non-resident service provider – Annual payment made to one service provider exceeds ₹1,00,000 in one financial year.
Let Us Understand It With An Example Rahul advertises on Facebook to expand his business. He pays ₹10,00,000 to Facebook for the advertising services availed. Facebook will bill Rahul for an amount of Rs. 10,60,000 (10,00,000 + 6% tax on 10,00,000). However, Rahul will pay only ₹10,00,000 to Facebook. He will deduct 6% tax of ₹60,000 and pay this amount directly to the Indian government.
What’s The New 2% Tax Then? Under the new reform, the government has imposed a 2% indirect tax on non-resident e-commerce companies like Amazon or Alibaba supplying goods or services. However, only companies earning more than ₹2 crores in India will be under its ambit. Also, companies that come under the 6% Equalisation Levy will not come under this tax. The new Levy was applicable from 1st April 2020. The taxes are to be paid quarterly, i.e. the first tax payment due date is 7th July. So far ten countries have implemented equalization levy on e-commerces. It is believed that if the governments do not implement this new reform, it would cost nations $100-240 billion in lost revenue annually and digital companies alone could be liable for up to $100 billion of that amount.
Moreover, as this 2% tax is indirect and is applicable on business to consumer model, E-commerces will be considered a ‘Type of Deductor.’ It means companies will pay tax after collecting from customers. In India, a PAN Card is mandatory for the deductor. The government has also given an ‘Outside India’ option while seeking address details while applying for PAN. Currently, more than 12 non-resident companies are under purview.
Woes Of Companies E-commerce companies are facing several problems due to the sudden implementation of this tax. They say there is a lack of clarity over the matter from the side of the government. Strict measures by government such as mode of payment – that must be through an Indian bank account or debit card issued by an Indian bank – and interest and penalty charged on the delay of payment have resulted in an increase in the problems faced by the companies. The foreign firm won’t get credit in its home country for the Equalisation tax paid.
USA To Probe Into The Matter Under Section 301 of USA’s 1974 Trade Act, the USA will probe the digital services taxes (DST) imposed by Austria, Brazil, the Czech Republic, the European Union, Indonesia, Italy, Spain, Turkey, UK, and India. The USA could take punitive measures if policy found unfair or inequitable or discriminatory against US-based e-commerce firms.
Curiopedia
The printing of the union budget documents starts roughly one week ahead of presenting in the Parliament with a customary ‘Halwa ceremony’ in which halwa is prepared in large quantities and served to the officers and support staff involved. They remain isolated and stay in the North Block office until the Budget is presented.
‘Google tax’ is a popular term used to refer to anti-avoidance provisions that have been passed in several jurisdictions dealing with profits or royalties that have been diverted to other jurisdictions with lower or nil rates.
After two straight years of paying $0 in U.S. federal income tax, Amazon paid a $162 million bill in 2019. $162 million is still just a fraction of the $13.9 billion in pre-tax income Amazon reported for 2019 — roughly 1.2%, in fact.
Curated Coverage
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