• A Committee on Taxation of e-commerce constituted by the Central Board of Direct Taxes (CBDT) to examine the business models for e-commerce submitted its report on 21 March 2016
• The Report of the Committee was received by the Government of India and taken into consideration in the preparation of Finance Bill, 2016
• The Report provides the view of the Committee on issues related to taxation of e-commerce and recent international developments in this area
• The Committee included officers of the CBDT, representatives from the industry, the Institute of Chartered Accountants of India and tax experts
• The 8 member committee was headed by Akhilesh Ranjan, Joint Secretary (FT&TR-I), C8DT, Department of Revenue, Ministry of Finance

Recommendations:

• Equalization Levy may be imposed on payments to non-residents for specified services by a separate chapter in the Finance Act, 2016
• The Equalization Levy should be chargeable on any sum that is received by a non resident from a resident in India or a permanent establishment in India as a consideration for the specified digital services
• The rate of Equalization Levy may be between 6 to 8 % of the gross sum received
• Equalization Levy should not be charged unless the consideration received for specified services in a year from a person in India is more than one lakh rupees
• Equalization Levy should also not be charged on payments received by a permanent establishment of a non-resident in India, which are attributable to that permanent establishment and taxable under Income-tax Act, 1961
• Every person that has received any sum chargeable to Equalization levy, would be required to pay the Equalization Levy chargeable on that sum to the union government
• Every person that has received any sum chargeable to Equalization levy, would be required to file a return of Sum chargeable to Equalization Levy as prescribed, if such total sum received by that person in a year exceeds ten crore rupees
• Any income arising from a transaction on which Equalization Levy has been paid should be exempted from income-tax, by necessary amendment in Section 10 of the Income-tax Act, 1961
• The definition of business connection in section 9 of the Income-tax Act, 1961 may be expanded to include the concept of significant economic presence
• Work on exploring the possibility of deduction of Equalization Levy by the payment gateways should be initiated immediately
• The implementation and impact of Equalization Levy may be monitored on a regular basis

What is Equalisation Levy?

• To avoid some of the difficulties arising from creating new profit attribution rules for purposes of a nexus based on significant economic presence, an equalisation levy could be considered as an alternative way to address the broader direct tax challenges of the digital economy
• This approach has been used by some countries in order to ensure equal treatment of foreign and domestic suppliers
• An equalisation levy could be structured in a variety of ways depending on its ultimate policy objective
• In general, an equalisation levy would be intended to serve as a way to tax a non-resident enterprise’s significant economic presence in a country
• In order to provide clarity, certainty and equity to all stakeholders, and to avoid undue burden on small and medium-sized businesses, the equalisation levy would be applied only in cases where it is determined that a non-resident enterprise has a significant economic presence

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