A federal investigation in the United States has blasted India over what it calls a ‘discriminatory’ practice of 2 percent equalisation levy but stopped short of imposing counter-tariffs for Indian businesses. The equalisation tax is also known as google tax.
India, on its part, defended the levy and said that its aim was to ensure a level playing field between local and foreign e-commerce companies, that the tax does not discriminate against any US company, and that it has no retrospective element.
The equalisation levy applies to non-resident e-commerce operators. While it applied only to digital advertising services till 2019 at the rate of 6 percent, the government widened the scope to impose a 2 percent tax on non-resident e-commerce players from April 1, 2020. It covers players including Adobe, Uber, Udemy, Zoom, Expedia, Alibaba, IKEA, LinkedIn, Spotify, and eBay.
The outgoing Donald Trump administration had announced an investigation earlier this year under section 301 of the U.S. Trade Act, 1974 against the taxation on digital services adopted or under consideration by countries including the equalisation levy applied by India. Other counties under investigation included Italy, Turkey, and the United Kingdom.
The probe has found India’s equalisation levy to be discriminatory.
“India will examine the determination notified by the USTR on equalisation levy and will take appropriate action keeping in view the overall interest of the nation,” India responded in an official statement.
“There is no retroactive element as the levy was enacted before the 1st day of April, 2020 which is the effective date of the levy. It does not have extra territorial application as it applies only on the revenue generated from India,” it said.
The centre added that the equalisation levy was very much acceptable under the base erosion and profit shifting project adapted by OECD countries to tackle the taxation challenges arising out of digitisation of the economy.
“The purpose of the Equalisation Levy is to ensure greater competitiveness, fairness, reasonableness and exercise the ability of governments to tax businesses that have a close nexus with the Indian market through their digital operations,” the government said, adding that it had a legitimate right to such a taxation.