Equalisation levy is my sovereign right says FM 

Equalisation levy is my sovereign right says FM 

Subject: Economy

Section: Public Finance

Equalisation Levy

Background:

• Over the last decade, Information Technology has gone through an exponential expansion phase in India and globally. This has led to an increase in the supply and procurement of digital services.
  Consequently, this has given rise to various new business models, where there is a heavy reliance on digital and telecommunication networks.
  As a result, the new business models have come with a set of new tax challenges in terms of nexus, characterization, and valuation of data and user contribution.
  To bring clarity in this regard, the government introduced vide Budget 2016, the equalisation levy to give effect to one of the recommendations of the BEPS (Base Erosion and Profit Shifting) Action Plan.

What is Equalisation Levy?

• Equalisation Levy is a direct tax, which is withheld at the time of payment by the service recipient. The two conditions to be met to be liable to equalisation levy:
• The payment should be made to a non-resident service provider;
• The annual payment made to one service provider exceeds Rs. 1,00,000 in one financial year.
• Currently, not all services are covered under the ambit of equalisation Levy. The following services covered:

1. Online advertisement
2. Any provision for digital advertising space or facilities/ service for the purpose of online advertisement

• Now, Government has expanded its scope to all Digital Trade and Services.
• Companies with revenues of less than $20 billion will not be part of this

BEPS (Base Erosion and Profit Shifting)         

• Base erosion and profit shifting refers to the phenomenon where companies shift their profits to other tax jurisdictions, which usually have lower rates, thereby eroding the tax base in India.