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Effective from 01 April 2020, the Government of India has widened the scope of its equalisation levy to include e-commerce sales of goods and services provided by non-resident operators to Indian customers.
The equalisation levy is imposed at 2% on the considerations received or receivable by the non resident e-commerce operators. Businesses based in Mauritius or other jurisdictions and engaged in e-commerce activities in India have to assess the impact of this new levy on their business model and start thinking ahead on how this levy could potentially impact on their cost structure or could be used as a foreign tax credit.
The first quarterly filing of the equalisation levy for qualifying e-commerce operators is due by 07 July 2020 for the period April to June 2020. It is important to adhere to this new compliance obligation in India to avoid penalties and interest.
India introduced a digital tax in the form of an ‘Equalisation Levy’ (‘EL’) in 2016. Initially, the EL was levied on online advertisements and other related payments for provision of digital advertising space at the rate of 6% to non-residents not having a permanent establishment (‘PE’) in India.
Effective from 01 April 2020, the Indian Government has expanded the scope of the EL to cover all non-residents who own/operate/manage an e-commerce facility or platform for online sale of goods or services or both or facilitation of such sale.
EL shall be levied at 2% on consideration received or receivable by an e-commerce operator from e-commerce supply or services made or provided or facilitated to:
‘Online’ is defined as a facility or service or right or benefit or access that is obtained through the internet or any other form of digital or telecommunication network.
Income subject to EL will be tax exempt under other provisions of the Indian Income Tax Act from FY 2021-22.
The levy is structured as a payout by the operator and not as a withholding tax by the payer. Hence, where a Mauritius company is a non-resident operator in a digital platform or facility in India, it will have to make a payout of the EL as a non-resident payee outside India.
It is therefore important for a non-resident supplier of goods and services outside India to take cognizance of the impact of this new provision made by the Government of India.
The EL is required to be deposited by the e-commerce operator to the credit of the central Government of India on quarterly basis on the below mentioned due dates:
Due date for payment of the EL for the first quarter, i.e. April to June 2020, is 07 July 2020. Accordingly, it is important to determine and finalise the position on the application of this levy at the earliest.
Also, as per the existing provisions, every person deducting the EL is required to furnish an annual EL statement on or before 30 June of each year. (The rules and form with respect to the EL paid by the e-commerce operators are yet to be prescribed)
Failure to furnish such a statement shall attract a penalty of INR 100/ for each day of default. If a false statement has been filed, then the e-commerce operator may be subject to imprisonment of up to 3 years and a fine.
Historically, there have been debates around the characterisation of income from softwares, particularly whether these should be classified as royalty or business income. The characterisation of income from software agreements are usually assessed on a case to case basis.
Therefore, in such cases, businesses would need further guidance on whether such income would be classified as business income and therefore be subject to the EL of 2% or such income would be treated as royalty or Fee for Technical Services (“FTS”) and would be subject to tax at 10% (including surcharges and cess).
The EL is neither a direct or an indirect tax. Therefore, businesses have to determine whether this levy should be expensed or could be treated as a withholding tax and be claimed as foreign tax credit in Mauritius or elsewhere.
Anthony Leung Shing, ACA, CTA
Country Senior Partner, PwC Mauritius
Tel: +230 404 5071
Dheerend Puholoo, ACCA
Tax Leader, PwC Mauritius
Tel: +230 404 5079