India on Thursday said the 2% equalisation levy does not discriminate against US companies as it applies equally to all non-resident e-commerce operators, irrespective of their country of residence.
The commerce and industry ministry said the Government of India will examine the determination or decision notified by the US in this regard and would take appropriate action keeping in view the overall interest of the nation.
The comments came against the backdrop of a US Trade Representative (USTR) investigation, which has concluded that India's 2 per cent digital services tax on e-commerce supply discriminates against American companies and is inconsistent with international tax principles.
India submitted its comments to the USTR in this regard on July 15, 2020 and participated in the bilateral consultation held on November 5, 2020.
India had emphasised that the "equalisation levy (EL) is not discriminatory but, on the contrary, seeks to ensure a level-playing field with respect to e-commerce activities undertaken by entities resident in India, and those that are not resident in India, or do not have a permanent establishment in India".
It was also clarified that the EL was applied only prospectively and has no extra-territorial application as it is based on sales occurring in the territory of India through digital means, the commerce ministry said.
The ministry further said there is no retrospective element, as the levy was enacted before the 1st day of April 2020, which is the effective date of the levy.
The purpose of the equalization levy is to ensure fair competition and reasonableness, and exercise the ability of governments to tax businesses that have a close nexus with the Indian market through their digital operations.
The levy, it said, is a recognition of the principle that in a digital world, a seller can engage in business transactions without any physical presence, and governments have a legitimate right to tax such transactions.
The office of USTR on January 6, 2021, released its findings on the Section 301 investigation into India's digital services tax (DST) and concluded that India's DST (the equalisation levy) is discriminatory and restricts US commerce.
Similar determinations were also made against Italy and Turkey.
The ministry also said India-based e-commerce operators are already subject to taxes in India for revenue generated from the country's market.
"However, in the absence of the EL, non-resident e-commerce operators (not having any permanent establishment in India but significant economic presence) are not required to pay taxes in respect of the consideration received in the e-commerce supply or services made in the Indian market," it added.
It further said the EL levied at 2 per cent is applicable on non-resident e-commerce operator, not having a permanent establishment in India.
"The threshold for this levy is Rs 2 crore, which is very moderate and applies equally to all e-commerce operators across the globe having business in India.
"The levy does not discriminate against any US companies, as it applies equally to all non-resident e-commerce operators, irrespective of their country of residence," it said.
Sources said the equalisation levy does not discriminate against any US companies as it applies equally to all non-resident e-commerce operators, irrespective of their country of residence.
They added that the levy was one of the methods suggested by an OECD/G20 report, which was aimed at tackling the taxation challenges arising out of digitisation of the economy.
USTR's investigation said the Indian levy discriminates against American companies, unreasonably contravenes international tax principles, and burdens or restricts US commerce.
It has observed that India's DST is discriminatory on its face, as the law explicitly exempts Indian companies, while targeting non-Indian firms.
The report has also stated that the levy exacerbate the tax burden on US companies by way of its extra-territorial application, its taxation of revenue rather than income.