E-Commerce Committee Report proposing Equalization Levy

Section 11 - Conclusions & Recommendations of the Committee

167. In view of the observations made in the earlier sections of this Report, the conclusions and recommendations of the Committee are summarized in this section.

11.1 Conclusions

168. Digital Economy has now become a significant segment of economy around the world, including India. The ability of enterprises to conduct their business on a non-occasional basis, and have significant participation in the economic life of a jurisdiction, without having a physical presence there, gives rise to significant tax policy challenges in terms of nexus, characterization and valuation of user data and contributions. Challenges also exist in respect of valuation of user data and contributions, that are relied upon by enterprises for earning profits from a jurisdiction and which need to be taken into account for determining taxable nexus and attribution of profits to the jurisdiction.

169. The asymmetry in tax burden between Indian and multi-national enterprises is likely to have a distortionary impact on the market competition and can adversely affect the development of Indian digital enterprise industry, apart from creating strong incentives for Indian enterprises to either locate themselves outside India or sell their businesses to foreign enterprises. The asymmetry in tax burden also adversely affects the competitiveness of traditional brick and mortar businesses in India (including permanent establishments of foreign companies in India). The resultant adverse impact on the profitability of enterprises paying taxes in India can lead to significant detrimental impact on the fiscal health of Indian economy and consequently, on its growth.

170. The limitations of physical presence based threshold for taxing income from business, which was conceptualized long before the development of digital economy is now widely recognized and accepted by international community. It is also recognized and accepted that significant tax challenges arise from the difficulties in applying the existing international taxation rules, as they exist in tax treaties today, in respect of digital economy. Physical presence cannot be considered an appropriate test for determining taxable presence in respect of business models in digital economy.

171. There is considerable ambiguity regarding the characterization of income arising from transactions involving telecommunication networks, software and data exchange. These disputes on characterization of payments are more commonly observed in countries like India, that have tax treaties wherein taxing rights are allocated to the source jurisdiction in respect of royalty and fee for technical services. Many of these disputes arise from the insistence of taxpayers to apply the guidance developed by OECD, even though India has documented its disagreements with such guidance, and its position in tax treaties precede the development of that guidance.

172. In view of the challenges faced by India in terms of characterization of income, and the lack of universal consensus on adopting the new nexus based significant economic presence, as well as the likely difficulties faced in attributing profits under existing rules, there appears to be a strong case for finding a solution to all these issues, in the form of a simple, clear and predictable tax rule that unambiguously defines the tax liability of digital enterprises, reduces their tax risk and contingent liabilities, and minimizes compliance costs, disputes and administrative burden.

173. In view of the role and contribution made by the users by way of data, content creation and networking benefits, users need to be considered as a significant indicator of both nexus and creation of value in the jurisdiction of source. However, quantifying such value creation can be a challenging task, and therefore a simple tax rule that broadly covers such value or a significant part of it, may be preferable.

174. Recent works of experts on the tax challenges in digital economy represent the global recognition of the extent of the tax challenges of digital economy.

175. The BEPS Report on Action 1 (2015), which has been endorsed by the G-20 and OECD provides a broad international consensus on the tax challenges arising from digital economy and identifies the options to address them. The Report did not recommend any of the options at this stage, primarily since adopting them “would require substantial changes to key international tax standards and would require further work”, but by concluding that “Countries could, however, introduce any of the options in their domestic laws as additional safeguards against BEPS, provided they respect existing treaty obligations, or in their bilateral tax treaties”, an international consensus has now emerged among G-20 and OECD countries, which recognizes and accepts the right of a country to adopt any of the options identified in the Report on BEPS Action 1, in its domestic laws or in its bilateral tax treaties.

176. In view of the differences between the preferences of different countries, it may take a long time for the international community to arrive at a recommendation that is likely to be adopted uniformly by all countries in a way that will completely harmonize international taxation on digital economy. Thus, a practical and pragmatic solution to address these challenges would need to be adopted in the domestic law by any country wanting to address these challenges.

177. Among the options recognized and examined by the Task Force, the option of “a new nexus based on significant economic presence” can be adopted in the Income-tax Act, 1961, but will not be sufficient for taxing income on the basis of this new nexus, unless any applicable tax treaty is also amended by inserting such nexus. Similarly, the adoption of a “final (or intermittent) withholding tax on digital transactions” in the Income-tax Act, 1961, may also be rendered ineffective unless the same option is also included in the applicable tax treaty. The Committee also notes that India is committed to the obligations made by it under the tax treaties, which largely limit the application and effectiveness of adopting these options in the Income-tax Act, 1961. These limitations, however, do not limit the adoption or application of the third option, i.e. ‘Equalization Levy’ unless it is levied on ‘income’ that may fall within the scope of taxes covered under the tax treaties. The Committee also notes that this option is put forth in the BEPS Report on Action 1 as one that can be considered as an alternative to the other two, and is a simpler option devoid of the difficulties that are associated with the more intractable issue of attribution of profits.

178. Thus, among the three options that can be adopted under domestic laws, the ‘Equalization Levy’ is the most feasible option. Such a levy cannot, however, be imposed on income and would need to be imposed on the transacted amount or payment itself.

179. While the BEPS Report on Action 1 suggests further work on tax challenges arising from digital economy, no clear framework for undertaking this work has been determined and even if any further work is undertaken, it is not clear as to whether any actionable outcomes from such work can be anticipated in foreseeable future, particularly in view of the likely resistance to such work from countries that benefit from existing rules. Thus, there does not appear to be any justification for postponing measures for addressing tax challenges in digital economy.

180. BEPS Report on Action 1 clearly differentiates the “BEPS Issues in digital economy” that consist of artificial arrangements to avoid paying taxes, from the “broader tax challenges from digital economy” that primarily relate to the non-applicability of a physical presence based tax nexus on digital businesses, characterization of income and valuation of user data and contribution. While certain recommendations like those in Action 6 for preventing treaty abuse, or those in Action 7 for preventing artificial avoidance of PE Status may have some impact on the “BEPS issues in digital economy”, there is virtually nothing in the outputs or outcomes of any of the other Action Points of BEPS Project that can address the broader tax challenges.

181. In view of the Committee, there is a need to consider the feasibility of adopting the ‘Equalization Levy’ under domestic laws of India to address the tax challenges arising from the digital economy at this stage. The Committee is also of the view that adopting such a measure at this stage will bring greater certainty and predictability to all the stakeholders, enable them to take it into account while making their future business plans and pricing of products, and thereby contribute to a more stable environment that would exit in the absence of such a measure.

182. Compared to the option of including Equalization Levy in a tax treaty, the option of imposing the same under the domestic law appears to have significant advantages in terms of providing simplicity, uniformity and consistency as well as minimizing the costs of administration and compliance, and is therefore, a preferred option.

183. Past precedence exist for imposition of similar taxes on transactions, like the Security Transaction Tax (STT) and the Service Tax. In view of these precedents, and the need to keep the ‘Equalization Levy’ separate from the taxes on income, this Committee is of the view that the ‘Equalization Levy’ on payments for digital goods and services should be imposed through statutory provisions in the Finance Act.

184. Equalization levy on gross amounts of transactions or payments made for digital services appears to be in accordance with the entries at Serial Number 92C and 97 of the First List in the Seventh Schedule of the Constitution of India. The existing precedent in the form of the Service Tax appears to remove any ambiguities and doubts in this regard. Thus this committee is of the view that Equalization Levy as a tax on gross amounts of transactions, imposed by the Union through a statute made by the Parliament, would satisfy the test of constitutional validity.

185. The Equalization Levy should be limited to the payments made for intangible services, including payments for use or right to use any intangible, access a digital, telecommunication or similar network, or avail any service or other benefit received from a foreign company or a person outside India, provided the services are either received, utilized, provided or performed in India, and thus have a nexus with India, irrespective of whether the payment is made by a resident or a non-resident person. Thus, the payment made by the permanent establishment of a foreign company in India to its headquarters outside India would be covered if it otherwise falls within the scope of Equalization Levy. To the extent possible, the categories of payments that would be subjected to Equalization Levy should be listed clearly.

186. To prevent and avoid the possibility of double economic taxation from levy of both Equalization Levy and Income-tax, relief would need to be provided from income-tax in respect of payments on which Equalization Levy is already paid. Such relief can be provided in three possible ways – by exempting income arising from transactions on which Equalization Levy has already been paid; by providing deduction from total income; or by providing tax rebate. Among these, the exemption of income appears to be the simplest option with least unintended consequences, and hence may be preferable.

187. The scope of such Equalization Levy may be restricted by keeping out smaller transactions where the compliance and administrative costs would not be commensurate with the revenue collected. Thus having a revenue threshold (such as Rs. one lakh) for a single transaction, as well as a revenue threshold for the total sum paid in a year (such as Rs. ten lakh) would be preferable. Such thresholds should practically exempt all payments made by consumers for personal consumption, and would thereby ensure that no Equalization Levy is payable on B2C transactions.

188. The compliance of Equalization Levy can be ensured largely by getting it deducted by the payer. This obligation should only be restricted to business-to-business payments, where the amount paid is claimed as a business expense (including capitalized expense) for determining taxable profits of that business. A certificate of an auditor that Equalization Levy has been deducted and paid to Government in cases where it was chargeable, and filing of a simple annual return online should be sufficient compliance with this obligation.

189. The beneficial owner of the Equalization Levy should be required to pay the Equalization Levy chargeable on sums received by it, to the Government. Thus, if it has received a sum on which Equalization Levy is chargeable, and not deducted by the payer, it would be liable to pay the same to the Government. However, if Equalization Levy has already been deducted on payments made to it, no further amount would be payable by it to the Government. The reporting obligations of the beneficial owner can be minimized by providing the facility of a simple online return on annual basis, subject to a minimum threshold of receipts, like, Rs. 10 crores in the year.

11.2 Recommendations of the Committee

A. Equalization Levy may be imposed on payments to non-residents for specified services by a separate chapter in the Finance Act, 2016

190. In accordance with the conclusions of the BEPS Report on Action 1, which have been endorsed by G-20 and OECD, it is recommended that an “Equalization Levy” may be imposed on digital transactions, by introducing the necessary statutory provisions by a separate chapter in the Finance Act, 2016. This will not be a part of the Income-tax.

191. The Equalization Levy should be chargeable on any sum that is received by a non resident from a resident in India or a permanent establishment in India as a consideration for the specified digital services.

192. The rate of Equalization Levy may be between 6 to 8 percent of the gross sum received

193. Specified services may be defined as following:

(i) online advertising or any services, rights or use of software for online advertising, including advertising on radio & television;
(ii) digital advertising space
(iii) designing, creating, hosting or maintenance of website
(iv) digital space for website, advertising, e-mails, online computing, blogs, online content, online data or any other online facility
(v) any provision, facility or service for uploading, storing or distribution of digital content
(vi) online collection or processing of data related to online users in India
(vii) any facility or service for online sale of goods or services or collecting online payments
(viii) development or maintenance of participative online networks
(ix) use or right to use or download online music, online movies, online games, online books or online software, without a right to make and distribute any copies thereof
(x) online news, online search, online maps or global positioning system applications
(xi) online software applications accessed or downloaded through internet or telecommunication networks
(xii) online software computing facility of any kind for any purpose
(xiii) reimbursement of expenses of a nature that are included in any of the above

194. It may be clearly explained in the provision that for the purposes of the above, ‘online’ means a facility or service or right or benefit or access that is obtained through the internet or any other form of digital or telecommunication network including radio & television, whether analog or digital.

195. It may also be clearly explained that Equalization Levy would be payable if the sum received is a consideration for any of the above, irrespective of how it may be described in the books of the beneficial owner or the payer

196. Equalization Levy should not be charged unless the consideration received for specified services in a year from a person in India is more than one lakh rupees.

197. Equalization Levy should also not be charged on payments received by a permanent establishment of a non-resident in India, which are attributable to that permanent establishment and taxable under Income-tax Act, 1961. A written declaration by the beneficial owner in a prescribed form including Indian PAN and a Tax Identity Number in country of residence for this purpose should be sufficient.

198. Every person that has received any sum chargeable to Equalization Levy, would be required to pay the Equalization Levy chargeable on that sum to the central government. The Equalization Levy payable by that person will be the Equalization Levy payable on the sum chargeable to Equalization Levy as reduced by the Equalization Levy deducted by the payers from such sum at the time of payment or credit of such sum.

199. Every person that has received any sum chargeable to Equalization Levy, would be required to file a return of Sum chargeable to Equalization Levy as prescribed, if such total sum received by that person in a year exceeds ten crore rupees. Necessary facility for filing of such return online in a simple form should be made available. The details sought in the form should include the name and address of the payer, amount and date of payment of each payment of sum that is received by that person and the amount of Equalization Levy deducted by the payer on it.

200. The payer should be liable to deduct the Equalization Levy, if the payment is incurred for the purpose of a business in India and likely to be claimed as an expenditure (including capitalized expenses). This obligation should be similar to the obligation that exists in respect of Tax deducted at source under Income-tax Act, 1961.

201. The payer should also be required to get a certificate from an Auditor, within 60 days after the end of the year, that Equalization Levy has been deducted from all sums chargeable to it, and paid to the Central Government within 30 days of such deduction. The payer should also be required to file an annual return of deduction of Equalization Levy, in a simple form including the name and address of the payer, amount and date of payment of each such payment, the amount of Equalization Levy deducted on it and the details of payment of such deducted amount to the Government.

B. Corresponding Changes in the Income-tax Act, 1961

202. Any income arising from a transaction on which Equalization Levy has been paid should be exempted from income-tax, by necessary amendment in Section 10 of the Income-tax Act, 1961

203. The allowability of the payment as an expense for determining the taxable profits under the Income-tax Act, 1961 may be linked with the payment of Equalization Levy, similar to the allowability under Section 40 of that Act, including the allowance of such deduction in the year in which it is paid.

204. Payments subjected to Equalization Levy may also be notified under Section 195 (7) of the Income-tax Act, 1961, along with an exemption provided in the notification itself to those cases where Equalization Levy is paid, so as to strengthen the deterrent against noncompliance.

C. Other Recommendations

205. The definition of “business connection” in section 9 of the Income-tax Act, 1961 may be expanded to include the concept of significant economic presence

207. The implementation and impact of Equalization Levy may be monitored on a regular basis, particularly as the digital services that can be provided and availed without physical presence, continue to evolve and expand in India. A Standing Committee may be constituted for this purpose.

Appendix -1
A Summary of the Proposed Equalization Levy

Charged on

Consideration received by a non-resident for specified services, from a resident in India or a permanent establishment in India

Provided that Equalization Levy shall not be charged unless

- the consideration received from a person for specified transactions services in a year is more than Rs. 1 lakh

Rate
At a rate that is between 6 to 8 % of the gross amount of consideration for specified transactions⁸⁵

Payable by
The beneficial owner of the consideration for specified transactions

Specified Services
(i) online advertising or any services, rights or use of software for online advertising, including advertising on radio & television;
(ii) digital advertising space
(iii) designing, creating, hosting or maintenance of website
(iv) digital space for website, advertising, e-mails, online computing, blogs,
online content, online data or any other online facility
(v) any provision, facility or service for uploading, storing or distribution of digital content
(vi) online collection or processing of data related to online users in India
(vii) any facility or service for online sale of goods or services or collecting online payments
(viii) development or maintenance of participative online networks
(ix) use or right to use or download online music, online movies, online games, online books or online software, without a right to make and distribute any copies thereof
(x) online news, online search, online maps or global positioning system applications
(xi) online software applications accessed or downloaded through internet or telecommunication networks
(xii) online software computing facility of any kind for any purpose
(xiii) reimbursement of expenses of a nature that are included in any of the above

(For the purposes of above, ‘online’ means a facility or service or right or benefit or access that is obtained through the internet or any other form of digital or telecommunication network.)

(Equalization Levy would be payable if the sum received is a consideration for any of the above, irrespective of how it may be described in the books of the beneficial owner or the payer)

Exemptions

Equalization Levy would not be chargeable if the beneficial owner of the consideration for specified transactions

- has a permanent establishment in India, and
- the consideration forms a business receipt of that permanent establishment, and
- the income derived from the sum is attributable to such permanent
establishment in India, and taxable under the provisions of the Income-tax Act, 1961, and
- the beneficiary makes a declaration in writing in the prescribed form to this effect.

Mode of Payment
The beneficial owner shall pay the Equalization Levy to the Government on the total Equalization Levy payable by that person, as reduced by any Equalization Levy that is already deducted by payers.

Mode of Reporting Compliance
The beneficial owner shall file an online annual return of receipts for specified services, if such receipts exceed ten crore rupees. There will no such obligation if such receipts from India do not exceed ten crore rupees.

Obligation of Deduction at Source by Payer
Any person paying or crediting a sum on which Equalization Levy is chargeable shall deduct the Equalization Levy at the applicable rate from that sum if such payment is made for the purpose of a business in India

(A PE in India making a payment to the Headquarters or to any other non-resident on which Equalization Levy is chargeable shall also deduct the Equalization Levy at the applicable rate from that sum)

Mode of Reporting Compliance of Deduction
The deductor shall file an online annual Return of Deduction of Equalization Levy
Provided that a person who is not required to maintain its books of accounts under any law in India shall not be required to file such return
The deductor shall obtain a certificate of the Auditor in the prescribed form to the effect that Equalization Levy has been correctly deducted on payments
Provided that a person who is not required to get its books of accounts audited under any law in India shall not be required to obtain such a certificate

Whether the payment chargeable to Equalization Levy would include indirect taxes/levies paid in India
The Committee recommends that Equalization Levy should be chargeable on the amount received by beneficial owner excluding any indirect taxes/levies paid in India.

Corresponding Changes in Income-tax Act, 1961

Exemption of Income from a specified transaction on which Equalization Levy has been paid

Any income arising from a transaction on which Equalization Levy has been paid should be exempted from income-tax, by necessary amendment in Section 10 of the Income-tax Act, 1961

Payment for specified transactions on which Equalization Levy is chargeable not to be allowed as expenses if Equalization Levy has not been deducted

The allowability of the payment as an expense for determining the taxable profits under the Income-tax Act, 1961 may be linked with the payment of Equalization Levy, similar to the allowability under Section 40of that Act, including the allowance of such deduction in the year in which it is paid.

Non Statutory Measures

Notifications on specified transactions under section 195 (7)

Payments subjected to Equalization Levy may also be notified under Section 195 (7) of the Income-tax Act, 1961, along with an exemption provided in the notification itself to those cases where Equalization Levy is paid, so as to strengthen the deterrent against non-compliance.

Appendix-2
Clarifications regarding Equalization Levy

1. Objectives of Equalization Levy
To address the base erosion faced in digital economy from limitations of existing international taxation rules, in accordance with international agreement arrived in the BEPS Project. This base erosion happens when a deductible payment is made for the purpose of business and claimed as business expense, but the income arising from such payments is not taxable because of the limitations of existing international taxation rules.
To reduce the unfair tax advantage enjoyed by a multinational digital enterprise over its Indian competitors, and thereby ensure fair market competition. The unfair tax advantage arises when domestic enterprises are taxed but multinational enterprises are not taxed on their income arising from India.
To provide greater certainty and predictability with regard to taxation of payments for digital services by way of a stable tax regime.
‘Equalization Levy’ has been recognized and accepted in the BEPS Report on Action 1 as one of the options that can be resorted to by countries under their domestic laws.

2. Payment covered
It will be levied only on payment made for certain specified services and facilities provided by multinational enterprises not having a permanent establishment in India.

3. Payments not covered
It will not be levied on goods to be imported. The fact that orders are placed & payments are made on the internet will not attract Equalization Levy. In other words, what is normally understood as E-Commerce or digital Commerce need not necessarily attract Equalization Levy. Sellers or buyers selling tangible goods by using internet will not be affected, except in respect of payments for specified services.
It will also not be levied on services that are not specified, even if such services are procured by making payments from within India over the internet. For example, an Indian resident books hotel rooms abroad. Booking is made and payment is made on the net. However, hospitality services are not specified services for the purpose of Equalization Levy. Hence Equalization Levy will not be levied. Such transactions are normally known as E-Commerce. However, they will not attract Equalization Levy.
Thus, the Equalization Levy is not necessarily chargeable for all E-Commerce transactions.

4. Payment Thresholds for Equalization Levy
No Equalization Levy will be charged for payments below the threshold limit of Rs. one lakh for a single payment, or Rs. ten lakh of total payments made in a year by a payer to a single party. Thus, no Equalization Levy would be levied in the following instances:
(i) An Indian resident makes a single payment for Rs. 95,000 to a foreign enterprise for a specified service;
(ii) An Indian resident makes several payments to a foreign enterprise for specified services, but total of all payments made to that enterprise in the year is less than Rs. one lakh;
(iii) An Indian resident makes several payments to several foreign enterprises for specified services, but the total of all payments made to each of those enterprises in the year is less than Rs. one lakh.

These high thresholds are likely to ensure that payments of smaller amounts made by Indian consumers for personal consumption of services are not affected by it. In a case, where a total payment exceeding Rs. one lakh is made by a consumer for nonbusiness purposes (such as personal consumption) to a single foreign enterprise in a year, Equalization Levy would be chargeable, but even then there would be no liability on the consumer to deduct it. Thus, Equalization Levy would not affect nonbusiness consumers.

5. Payments to Residents & Permanent Establishments of Non-Residents not Liable
Equalization Levy will not be chargeable on payments for specified services made to Indian Residents. In fact, the levy is proposed to protect Indian residents from unfair competition arising out of unfair tax advantage enjoyed by their foreign competitors.

Equalization Levy will also not be chargeable on payments for specified services made to permanent establishment of non-residents in India. Thus, it also protects non-residents paying taxes on their income in India from unfair competition.

6. Indian Nexus necessarye
Equalization Levy will be levied only where payments for specified services are made by a resident of India or a permanent establishment of a non-resident for the purpose of its business in India. Payments made by a non-resident from within India will not attract Equalization Levy, unless it has a permanent establishment and payment is borne by that permanent establishment in India.

7. Deduction at Source liability only on businesses
The payer is required to deduct the Equalization Levy from a payment for specified services only if it is a payment made for the purpose of business, and the payer intends to claim a deduction for expenses on account of such payment for determining its taxable profits in India.
Thus, a person making payments for personal use and not intending to claim any deductions for that payment will not be required to make any deductions.

8. Possibility of deduction of Equalization Levy by Payment Gateways
The Committee recommends that necessary work for evolving a mechanism for deduction of Equalization Levy by payment gateways need to be initiated. However, the Committee recognizes that such a mechanism may take some time to develop.

9. Filing of Returns
Non-resident beneficial owner will have to file his tax return only if its annual receipts chargeable to Equalization Levy are in excess of Rs. Ten Crore. For receipts below Rs. Ten Crore, tax will be payable, but there will be no obligation for the nonresident to file a return. Tax deducted by Indian resident payers will be accepted as final payments, and if Equalization Levy has been deducted on all specified payments by payers in India, no further payment will be required from the beneficial owner.
Payers in India will be required to file a simple online return annually providing basic details of Equalization Levy deducted and paid to the Government.

10. No Payment, no Levy
If no payment is made for a service, there will be no levy. For instance, Equalization Levy will not be chargeable on services that are available freely on the internet, or free apps that are available to the Indian consumers.

11. Payments subjected to Equalization Levy exempted from Income-tax
All payments for specified services that are liable to Equalization Levy shall be exempt from Indian Income-tax in the hands of the non-resident beneficial owner. This will ensure that payments will not be covered by both Equalization Levy as well as Income-tax Act, and thereby ensure that there is no double taxation in India on those payments. This would also help in minimizing income-tax disputes relating to characterization of payments and their consequent taxability under the Income-tax Act.
Thus, the income of a non-resident from services that are covered by Equalization Levy, and on which Equalization Levy is paid will be fully exempt from income-tax.

12. Outside Income-tax Act – Not a tax on income
The Equalization Levy will be outside Income-tax Act. It is not a tax on income, as it is levied on payments. It is therefore also payable by enterprises not making any net profits.
However, Equalization Levy is not chargeable on payments made to permanent establishments of foreign enterprises in India, and thus, enterprises that would prefer to be taxed on their net income have the opportunity to have a permanent establishment in India and thereby get taxed only on their net income.

13. Tax Treaties (Double Taxation Avoidance Agreements) Not Applicable on Equalization Levy – No Foreign Tax Credit in the other country
As the Equalization Levy is not charged on income, it is not covered by Double Taxation Avoidance Agreements or tax treaties. Thus, no tax credits under the tax treaties will become available to the beneficial owner in the country of its residence, in respect of Equalization Levy charged in India.
The Committee recommends that in case the other country also levies a similar Equalization Levy, Government of India may explore the possibility of having a reciprocal agreement with that other country for allowing tax credits under the domestic tax laws for Equalization Levy paid.

14. Positive Aspects of Equalization Levy
(i) Internationally Recognized Option: Equalization Levy has been recognized as one of the possible options that can be resorted to by countries for addressing the tax challenges arising from digital economy, under their domestic laws.
(ii) The design of the Equalization Levy avoids many complications related to determination of nexus, characterization of payments and attribution of profits. As it is levied on gross payments at a flat, low, final rate, there is no need for determining taxable income.
(iii) Since this levy is not under the Income-tax Act, the provisions of transfer pricing and General Anti Avoidance Rules will not be applicable to it.
(iv) It does not affect consumers making payments up to Rs. one lakh.

15. Administration
The Equalization Levy can be administered in the same way as Securities Transaction Tax, by the Income-tax authorities.

16. Obligation to record in Books of Accounts and get them Audited
The deductor in India, if it is making the payment for purpose of its business, will be expected to record the transactions in its books of accounts that it is required to maintain for its business under any law in India. No such obligation would be there for a person, who is not required to maintain books of accounts.
Similarly, a deductor that is required to gets its books of accounts audited, would be expected to obtain a certificate that Equalization Levy has been deducted and paid to the Government as per law. No such obligation would be there for a person, who is not required to get its books audited.

17. Expected Revenue
The Equalization Levy is designed in a way to keep its impact limited at this stage to only certain specified transactions above a high threshold limit. Accordingly, it is not expected to be a major source of revenue at this stage. However, its prime significance lies in initiating a process of addressing tax challenges of digital economy; minimizing the unfair tax advantage enjoyed by multinational enterprises over their Indian competitors; bringing greater certainty and predictability in respect of certain disputed payments; and creating incentives against base erosion and in favor of compliance with Indian tax laws, without disrupting the economy or adding to the cost of compliance or administration. Its overall contribution as a tax policy measure is likely to be significant in the long run.
Even though the greatest benefits of this measure will become available later, it is important to introduce it now, so as to enable the businesses to adapt to its impacts. Such a measure will also introduce long term certainty, predictability and avoid the need of surprise measures in future.

18. Ease of Compliance and Administration
Compliance of Equalization Levy can be completed on the internet, including payment of Equalization Levy and filing of returns. In view of the simple and certain design of Equalization Levy, the administrative interventions are expected to be minimal, thereby minimizing the need for scrutiny, investigations and appeals. By exempting such income from income-tax, compliance and administrative costs in respect of income-tax are also likely to be reduced.

Appendix-3
Draft clause to be added to Form 3CD or Draft of a separate form for Audit Report under the [Equalization Levy] Act

(a) Whether the assessee has made specified payments to a non-resident covered under the [Equalization Levy] Act

(b)

S.No.	Specified Payments Made by the Assessee	Amount Paid	Equalisation Levy Deducted	Date of Payment

(A) Details of payment on which tax is not deducted:
(I) date of payment
(II) amount of payment
(III) nature of payment
(IV) name and address of the payee

(B) Details of payment on which tax has been deducted but has not been paid on or before the due date specified in sub- section (1) of section 139:
(I) date of payment
(II) amount of payment
(III) nature of payment
(IV) name and address of the payer
(V) amount of tax deducted
(VI) amount out of (V) deposited, if any

SINGATURES OF THE MEMBERS OF THE COMMITTEE

SIGNED BY THE MEMBERS OF THE COMMITTEE ON TAXATION OF E-COMMERCE
On February 3rd, 2016

(i) Shri Akhilesh Ranjan⁸⁶
Chief Commissioner of Income-tax (OSD),
FT&TR-I, CBDT, Department of Revenue,
Ministry of Finance & Chairman of the
Committee

(ii) Ms. Pragya Sahay Saksena
Joint Secretary (TPL-I), CBDT, Department of
Revenue, Ministry of Finance

(iii) Shri Pradip Mehrotra
Commissioner of Income Tax (ITA), CBDT,
Department of Revenue, Ministry of Finance

(iv) Ms. Chandana Ramachandran
Commissioner of Income Tax (International Taxation),
Bengaluru

(v) Shri Nihar N Jambusaria
Chairman, Committee on International Taxation
of the ICAI, representative of the Institute of
Chartered Accountants of India (ICAI)

(vi) Shri Pramod Jain
Head of Taxation, Flipkart, Industry
representative

(vii) Shri Rashmin Sanghvi
Chartered Accountant, Expert on International
Taxation and Taxation of E-Commerce

(viii) Dr. Vinay Kumar Singh
Director (FT&TR-I), CBDT Department of
Revenue, Ministry of Finance & Member
Secretary of the Committee

85. In view of the Committee, it may be a preferable option to restrict the rate of Equalization Levy at 6% at the time of its introduction, and then review it in subsequent years, to evaluate the desirability of raising it.

86. Shri Akhilesh Ranjan was Joint Secretary (FT&TR-I), CBDT, Department of Revenue, Ministry of Finance at the time of commencement of the work of the Committee, but was promoted as Chief Commissioner of Income-tax just before the signing of the report

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E-Commerce Committee Report proposing Equalization Levy