Equalisation Levy: No Discrimination Against U.S. Companies, Says India

India's equalisation levy doesn't discriminate against American e-commerce, the central government has informed the U.S. trade watchdog.

The government's response came in an investigation initiated by the office of the U.S. Trade Representative on digital service taxes proposed by countries, including India.

The government, through Finance Act 2020, introduced a tax on foreign e-commerce operators who don't have a business presence in India. A levy of 2% will be imposed on the sale of goods as well as services that take place through foreign e-commerce operators. This proposal drew the ire of the USTR, which termed the proposal discriminatory.

In its response, the government has reassured the U.S. that the levy is consistent with India's commitments to the World Trade Organization and is a result of deliberations on OECD's Base Erosion and Profit Shifting project—an initiative that helps counter strategies by multinational firms to avoid paying tax.

The intent behind the levy is to ensure neutral and equitable taxation on e-commerce operators that are resident in India or have a physical presence in India and those that are not resident in India, the government has said.

India has made the following submissions to the USTR:

• Out of the three options suggested by the OECD, India chose equalisation levy to address the asymmetry in tax burden between domestic and multinational enterprises.
• The objective of the levy is to provide clarity and predictability on digital services and consequent tax liabilities and minimise disputes in such matters.
• India's levy is non-discriminatory as it's uniformly and prospectively applicable.
• India sees equalisation levy as a safeguard against loss of tax revenues due to the activities of foreign e-commerce companies operating in India.
• India's approach is in line with the U.S. Supreme Court which recently held that physical presence isn't required for a sales tax levy where the online seller has no physical presence but makes online sales to buyers of the state.

The government has also said that the purpose of the levy is to exercise its ability to tax those transactions that have a close nexus with Indian markets through digital transactions.