The Finance Ministry’s move to impose an equalisation levy of 2% on e-commerce supplies and services from April 1 has led to a lot of ambiguity and needs clarity, according to tax experts.
The first instalment of payment became due on July 7. Earlier, the government had imposed a 6% equalisation levy on online advertisement services by non-resident entities. Later, the scope was expanded to online sale of goods and provision of services from April 1.
“The language is quite ambiguous. The concerns are genuine,” said K. Vaitheeswaran, a Chennai-based advocate and tax consultant.
“While the intention appears to be taxing e-commerce, it cannot end up taxing transactions where the medium is only the Internet.” he said.
“There should be a distinction between digital goods/digital services on one hand and goods and services supplied using the digital medium as a mode of delivery or for transacting,” he said.
Mr. Vaitheeswaran, who had authored the book ‘Taxation of Digital Economy,’ pointed out that, for instance, booking a film ticket online will not make movie screens e-commerce suppliers but downloading a film would become an e-commerce supply.
“Digital offerings of non-residents such as online books/online games/online gaming services (under specified circumstances) seem to come under the purview of the expanded equalisation levy. This is also in line with digital tax enactments by some other economies,” said Vishal Malhotra, tax leader for technology, media and entertainment and telecom, EY India.
However, he pointed out the way the provisions were worded, one could also interpret the same to bring sale of physical goods as also services enjoyed offline within the purview of the equalisation levy.
Mr. Malhotra said many businesses negotiated supply and service agreements online and use electronic means for confirming contracts but the delivery of goods and/or services was largely offline.
An example of this could be orders placed online for commodities such as oil on a portal.
The intent cannot aim to bring billions of dollars of cross-border commodity purchase transactions within the ambit of the equalisation levy merely on account of placement of the order online, he said.
He urged the government to provide clarity to help avoid litigation.