Amazon, Flipkart hit as budget slaps digital tax burden on non-resident e-com operators

A 2% equalization levy will be levied irrespective of whether the e-commerce operator owns goods/ services it is supplying to any user in India.

People watch Finance Minister Nirmala Sitharaman presenting Union Budget 2021-21 on television at an electronics store in Tirunelveli. (Photo | V Karthikalagu, EPS)

BENGALURU: In a move that may upset e-tailers like Amazon, Flipkart, the government has introduced an amendment in the Finance Act 2016 under which non-resident e-commerce operators will have to pay a 2% equalization levy on the online sale of goods/provision of services. 

The provisions under the amendment state that the equalization levy will be applicable to a) acceptance of offer for sale; or (b) placing of the purchase order; or (c) acceptance of the purchase order; or (d) payment of consideration as well as d) supply of goods or provision of services partly or wholly.

The tax will be levied irrespective of whether the e-commerce operator owns goods/ services it is supplying to any user in India. The equalization levy will apply to both B2B as well as B2C transactions. Unlike the earlier equalization levy where the resident payer had the responsibility to deduct and pay the levy to the Government of India, the compliance obligation in the new levy is to be discharged by e-commerce operators (non-resident) on a quarterly basis along-with an annual return.

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E-comerce firms like Amazon, Flipkart do have subsidiary entities based out of India, and the new tax levy will, according to experts, increase the cost of doing business, with no benefit of credit. 

"Given that India is engaged in the Organisation for Economic Co-operation and Development-led discussion to arrive at global consensus on the approach to tax digital economy, unilateral measures like equalization levy lead to multiple layers of taxation for the same income with no benefit of credit, thus increasing the cost of doing businesses. The new EL provisions have raised several concerns and interpretational challenges for the E-commerce industry. These concerns and challenges have made it difficult for the industry to comply with the provisions. Without appropriate clarifications, it is also difficult for the industry to make requisite changes to the billing/IT systems and terms of contract with the third parties," Nasscom had said in a representation made before the finance ministry.

Amazon, Flipkart when contacted didn't reply to queries at the time of publishing the story.