Finance Act 2020, came up with the provision to expand the existing scope of equalisation levy to the non-resident e-commerce operators. This provision was added to the Finance bill at the last minute without any notice or any reference either in the original bill or in the union budget speech of the Finance Minister. Due to the rush in the decision making process and the lack of stakeholder consultation, the provision was filled with ambiguities and vagueness which has not been clarified till date. The authorities have also failed to see that this levy which is applicable to the non-resident companies has the power to affect the geo-political relationship as well.
The impact of imposing unilateral equalisation levy is not limited only to a specific country. It goes on to the very root of international trade relations. Unilateral measures by one country often result in a retaliatory or countermeasure from another country. United States Trade Representatives (USTR) has already started the investigation into this levy against which though India has submitted its response, if USTR does not see any merit in it, they will impose counter sanctions as well. In the era of globalisation, where the digital boundaries have long been crossed, taking unilateral measures is not a wise option.
Currently, Digital trade in India enables ₹226 Thousand Crore economic impact within the domestic economy and we have the potential to reach ₹3,331 thousand Crore by 2030. The current export value of virtual goods and services enabled by the digital economy is $58 billion. If India’s export market is supported by greater cross border data flow, it is estimated that the market could grow to $197 Billion. If other countries pursue retaliatory measures, this growth could be heavily affected. In the time of pandemic, it could cause other countries to implement similar schemes which would ultimately affect India’s digital export growth.
Other than bilateral relationships, India could jeopardise the relations with OECD which has been trying to come to a multilateral consensus on this issue. While OECD is working on building consensus among the countries to allocate taxing rights, such unilateral measures will undermine the authority of this organisation and the ultimate success of achieving a multilateral solution. International tax has been an issue for several countries and this move from India is doing nothing but undermining the whole process of deliberation. There is a need to revisit this levy and wait for the OECD rounds to get over before taking unilateral steps.
