Ministry of Finance as well as Commerce has been thinking hard to control & resolve the problems relating to digital transactions and bring transparency about the applicable taxes on ecommerce businesses. For the same a committee on Taxation of E-Commerce was formed by the Central Board of Direct Taxes (CBDT).
After much deliberation, the committee released a report that recommends 6-8% ‘Equalization Levy’ on specified digital transactions is the solution to some of the tax woes and ambiguity hovering over the online industry.
The eight-member panel also included Pramod Jain, Head of Taxation – Flipkart who was the ecommerce industry representative. They explored two other options – a new nexus based on significant economic presence and the withholding tax on digital transactions before zeroing down on Equalization Levy.
Reason? Because it is the most feasible option out of all that doesn’t require amendment of a great number of existing tax treaties and has limited impact.
The report states, “The Committee recommends that only payment exceeding Rs. one lakh made by a person resident in India or a permanent establishment of a non-resident person to a non-resident enterprise be covered by this levy, which may be charged at a rate between 6 to 8 % of the gross payment made for specified services. Such a threshold will keep almost all B2C transactions, as well as a very large number of B2B transactions outside the scope of the Equalization Levy, thereby limiting its impact.”
What are these specified services?
According to the report, Equalization Levy will be applied on the following online transactions besides few others:
- online advertising or any services, rights or use of software for online advertising, including advertising on radio & television
- any facility or service for online sale of goods or services or collecting online payments
- digital advertising space
- designing, creating, hosting or maintenance of website
- digital space for website, advertising, e-mails, online computing, blogs, online content, online data or any other online facility
- online collection or processing of data related to online users in India
- use or right to use or download online music, online movies, online games, online books or online software, without a right to make and distribute any copies thereof
Main aim – Stable tax environment
The panel believes that this move will help to create a stable tax environment in India for digital economy.
“Adopting such a measure at this stage will bring greater certainty and predictability to all th
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