India will be required to roll back Equalisation Levy (EL) on e-commerce transactions by December 31, 2023, in accordance to a Multilateral Convention (MLC) enacted by the Organisation of Economic Co-operation and Development (OECD) on October 8.
The convention enacted by the OECD will be binding upon India as it a member of the 38-nation grouping.
The central government, since the rollout of Budget 2020, has proactively expanded the scope of EL to charge a 2 percent tax on e-commerce transactions carried out by foreign companies in India.
The OECD has categorically called for the removal of such taxation measures by the end of next year.
"The Multilateral Convention (MLC) will require all parties to remove all Digital Services Taxes and other relevant similar measures with respect to all companies, and to commit not to introduce such measures in the future," said a statement issued by OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting (IF).
"No newly enacted Digital Services Taxes or other relevant similar measures will be imposed on any company from 8 October 2021 and until the earlier of 31 December 2023 or the coming into force of the MLC," it added.
"The modality for the removal of existing digital services taxes and other relevant similar measures will be appropriately coordinated. The IF notes reports from some members that transitional arrangements are being discussed expeditiously," it further said.
The official stand of the New Delhi on the issue has, so far, been that the Equalisation Levy is not an income tax but a tax on the digital transactions and creates a level playing field between foreign and Indian companies.
This was done to disable non-ecommerce operators from avoiding paying any tax by claiming tax treaty benefits, which is available for income tax.
The United States, however, had cried foul over India's policy to impose the 2 percent EL.
The policy discriminates against American companies and is inconsistent with international tax principles, the US Trade Representative (USTR) said in January this year.
According to Ajay Rotti of Dhruva Advisors, India would have to roll back the EL in view of the MLC being enacted by the OECD.
"All signatories to the statement have agreed to roll back their digital levies with the introduction of the multilateral measures or December 2023. This would mean that India would have to roll back the Equalisation Levy. Also, the countries have agreed to have a binding dispute resolution mechanism to determine the amount taxable in that country. This is something India had expressed reservations to in the past but we seem to have agreed to it," Rotti said.
Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
