US Claims Equalization Levy in India as Discriminatory

The United States Trade Representative (USTR) has regarded the Equalisation Levy of India on e-commerce companies as ‘discriminatory’. This equalisation levy is also known as Google Tax. However, India has claimed that the tax is not discriminatory and it will be taking all appropriate actions in the matter as per the interests of the country.

Key Points

  • In its investigation report, the United States Trade Representative (USTR) pointed out that the Equalisation Levy in India or Digital Service Tax (DST) is discriminatory and burdens US commerce.
  • USTR further stated that the tax is actionable under Section 301 of the Trade Act, 1974.
  • The investigation was started by the USTR in June 2020.
  • The report also highlighted that the Indian companies are exempted from paying this tax and only ‘non-residents’ have to bear the tax.
  • As per the report, the Equalisation Levy of India creates an extra tax burden for US companies. USTR also estimated that due to the Digital Service Tax, the aggregate tax bill for US companies can increase by $30 million per year.
  • As a response, India stated that Indian e-commerce operators are already subject to taxes in India for revenue generated from the domestic market.
  • However, if there will be no equalisation levy, non-resident e-commerce operators will not be required to pay any taxes in respect of the consideration received in the e-commerce supply or services made in the Indian market and this is unfair for the interests of the country.

Equalisation Levy

The Equalisation Levy or Digital Service Tax was introduced in the year 2016. It was initially applicable to payments received by non-resident companies (without a permanent establishment in India) for digital advertisement services if these exceeded ?1 lakh a year. The rate of tax was 6%.

The ambit of the tax was widened in the Union Budget 2020-21, by including e-commerce companies. The applicable tax rate is 2% (plus a surcharge) on the value of the consideration received by an e-commerce operator. This came into effect from 1st April 2020.