EQUALISATION LEVY

EQUALISATION LEVY

Subject : Economy

Context :  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.

Concept :

• It effectively expands the scope of equalisation levy that was applied to digital advertising services only till last year.
• 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 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.

Equalisation Levy

• 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.
• 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:
• Online advertisement;
• 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.

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.