Govt Needs to Come Clear on Equal­i­sa­tion Levy

Will levy re­duce lit­i­ga­tion for cos?

The Economic Times - - Disruption: - Mi­lan Shah & San­deep Ladda

The finance min­is­ter in his bud­get for 2016-17 an­nounced in­tro­duc­tion of a new tax called ‘equal­i­sa­tion levy’ on the on­line ad­ver­tise­ment rev­enue of non-res­i­dent com­pa­nies from B2B trans­ac­tions. The Finance Bill, 2016, has pro­posed to in­sert a sep­a­rate Chap­ter VIII in the bill ti­tled ‘Equal­i­sa­tion Levy’ to pro­vide for a new levy of 6% on a non-res­i­dent, on the con­sid­er­a­tion for any “spec­i­fied ser­vice” re­ceived or re­ceiv­able of Rs1 lakh or more in any pre­vi­ous year from a per­son res­i­dent in In­dia car­ry­ing on busi­ness or pro­fes­sion, or from a non-res­i­dent hav­ing a per­ma­nent es­tab­lish­ment in In­dia. Such in­come charge­able to equal­i­sa­tion levy shall be ex­empt from in­come tax un­der the In­come-tax Act. Also, the Finance Bill, 2016, has pro­posed dis­al­lowance of ex­penses in the event the payer de­faults in de­duc­tion or de­posit of the said levy, along with cer­tain other in­ter­est and pe­nal con­se­quences. Post the bud­get an­nounce­ment, the Com­mit­tee on Tax­a­tion of E-com­merce set up by the CBDT re­leased the re­port ti­tled ‘Pro­posal for Equal­i­sa­tion Levy on Spec­i­fied Trans­ac­tions’, bat­ting for the equal­i­sa­tion levy at a rate be­tween 6% to 8%. The eight-mem­ber com­mit­tee has rec­om­mended ex­pan­sion of the scope of the levy by cov­er­ing within its am­bit not just on­line ad­ver­tise­ments but also 13 other on­line re­lated trans­ac­tions such as on­line mar­ket­ing, cloud com­put­ing, web­site designing host­ing and main­te­nance, dig­i­tal space, dig­i­tal plat­forms for sale of goods and ser­vices, on­line use or down­load of soft­ware and ap­pli­ca­tions, etc. The re­port sug­gests that the rate of the levy be re­stricted at 6% at the time of its in­tro­duc­tion and a rate hike be eval­u­ated in later years.

The ap­pre­hen­sion over whether the levy is in the na­ture of in­come tax and there­fore cred­itable in the coun­try of res­i­dence of the in­come-re­ceiv­ing for­eign com­pa­nies has been dealt with in the re­port. The com­mit- tee clar­i­fies that since the levy on a trans­ac­tion is, in any case, in­her­ently dif­fer­ent from a tax on in­come, it need not be in­cluded within the laws gov­ern­ing tax on in­come. Ac­cord­ingly, as per the re­port, it will be nec­es­sary to im­pose the levy through statu­tory pro­vi­sions out­side the ex­ist­ing In­come-tax Act.

Ac­cord­ing to the re­port, in­tro­duc­tion of the levy is ex­pected to re­duce lit­i­ga­tion for for­eign com­pa­nies pro­vid­ing on­line ad­ver­tise­ment ser­vices, since the in­come will now be ex­empt un­der the In­come-tax Act. In other words, the con­tro­versy over whether on­line ad­ver­tise­ment rev­enue is sub­ject to in­come tax will be put to rest.

How­ever, there still ex­ists a pos­si­bil­ity of the tax of­fice al­leg­ing a per­ma­nent es­tab­lish­ment for the non-res­i­dent com­pany and there­fore ex­pos­ing it to in­come tax at 40% plus sur­charge and cess on net ba­sis on the in­come at­trib­ut­able to the per­ma­nent es­tab­lish­ment. In such a situation, since equal­i­sa­tion levy is not cred­itable against such in­come tax, the for­eign com­pa­nies could be dou­bly taxed in In­dia. This as­pect has not been ad­dressed in the re­port. There are other is­sues such as in­abil­ity of the payer or the payee to ap­peal against an or­der of the tax of­fice im­pos­ing such levy, etc, which need iron­ing out be­fore the levy is made ef­fec­tive. Con­sid­er­ing the chal­lenges aris­ing from im­po­si­tion of the levy, it is likely that the payer and the payee would need to rene­go­ti­ate their cur­rent com­mer­cial ar­range­ments, which will de­ter­mine who would bear this added cost.

(San­deep Ladda is Tech & Ecom­merce sec­tor Leader, PwC In­dia, and Mi­lan Shah is Di­rec

tor, Ecom­merce )

Newspapers in English

Newspapers from India

© PressReader. All rights reserved.