The NDA government had moved an amendment in the Finance Bill 2020-21 imposing a 2 per cent digital service tax (DST) on trade and services by non-resident e-commerce operators with a turnover of over Rs 2 crore, effectively expanding the scope of equalisation levy that, till last year, only applied to digital advertising services.
The new levy came into effect from April 1. E-commerce operators are obligated to pay the tax at the end of each quarter.
The government said Thursday it will examine this decision and take “appropriate” action “keeping in view the overall interest of the nation.
According to the Commerce and Industry Ministry, the 2 per cent equalisation levy is not discriminatory, instead seeks to ensure a level-playing field with respect to e-commerce activities undertaken by entities resident in India as well as those not residents in India or without permanent establishment in India.
“The purpose of the equalisation levy is to ensure fair competition, reasonableness and exercise the ability of governments to tax businesses that have a close nexus with the Indian market through their digital operations,” it stated in a release.
The USTR analysis has identified 119 companies likely subject to India’s DST, of which 86 (72 per cent) are US companies, followed by China and the UK with 7 companies each, France with 6 companies, and Japan with 5.
It also notes that India’s DST taxes a wide range of services “other than digital services taxes” adopted around the world, which expands the universe of US companies subject to the DST, and increases the tax burden that US firms face.