MUMBAI: It’s a taxman versus internet majors standoff — companies such as Google, Facebook, LinkedIn haven’t paid the April-June quarter’s 2% equalisation levy that fell due on July 7. The new levy was announced in the 2020-21 budget.
Companies claim this is due to lack of clarification on issues such as whether the tax will be payable on gross or net revenue. Tax department officials told ET off record that “there’s no confusion”, and that tax will be calculated on “total money spent by Indians on these platforms”. On an earlier occasion, tax officials had told ET the levy will work on the same principle as tax deduction at source, and be applicable on gross revenue.
Currently, India and the United States are working to resolve a dispute on the equalisation levy, which the US opposes on grounds of “fairness”. India had responded by pointing out a US Supreme Court ruling that said physical presence of an online company was not required for imposing a tax in a particular location. Most internet majors facing the tax in India are American companies.
Executives of internet majors and tax officials spoke to ET off record. Questions sent to income tax department, Google, Facebook, LinkedIn and Amazon didn’t elicit any response till press time.
The next due date is October 7 when these companies will need to pay the tax for the July-September quarter as well as the dues for the April-June quarter on which interest will be charged.
Most Earnings Credited to Foreign Entity
Failure to pay the tax in the second quarter will lead to penalties being imposed.
“There is still no clarity as to whether equalisation levy should be on total sales revenue or only on the fee earned by the ecommerce operator and there are arguments to support both views. Also, platforms tend to have different revenue models and so the impact of the levy could vary under each model,” said Rajesh H. Gandhi, partner, Deloitte India.
“Many companies are just waiting and watching for more clarity but most large players want to be compliant,” said Girish Vanvari, the founder of tax advisory firm Transaction Square.
People familiar with the issue told ET that for many global internet majors, revenue recorded by the Indian arm is a fraction of total revenue earned in India as most earnings are credited to the foreign entity. India operations often charge as little as 1% commission on total earnings, sometimes even less, these people said.
The tax department’s argument for the levy has been that foreign internet majors earnings from India are escaping the tax net. In 2016, the government had imposed a 6% tax on these companies’ advertising revenues, which, tax consultants say, is paid by all assesses.
Internet company executives speaking off record said the likes of Google and Facebook have reached out to the government, but there has been no response. A senior tax official had earlier told ET “the levy is applicable on gross receipts or turnover of the goods sold or services provided by the foreign company”.
Some tax lawyers speaking off record said the thin margins of Indian operations of internet majors will take a big hit if the tax is applicable on their revenue.
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