Its abolition will now likely lead to better tax compliance, according to taxation experts who hailed the move.
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This levy has been a point of contention between India and the US with several affected entities being based in the US.
Welcoming the decision to abolish the tax, Ashish Aggarwal, head of public policy, Nasscom, said, “We are going to watch the announcement (pan out) over the coming months on how this will be transitioning to the OECD (Organisation for Economic Co-operation and Development) global taxation.”
“Previously, this provision had a broad application, often extending beyond typical digital business models, leading to significant ambiguity and confusion. Additionally, because the levy was not classified as a ‘tax’ under income tax laws, it posed challenges in terms of creditability for income earners in their home jurisdictions,” Amit Rana, partner, Price Waterhouse & Co LLP, told ET.
The move to abolish the 2% levy while leaving the 6% equalisation levy imposed on online advertising revenues untouched is also in line with the global commitments of the Indian government’s adherence to the Pillar Two consideration of the OECD, said Kumarmanglam Vijay, partner at JSA Advocates & Solicitors.
“There is a plan for MNCs to pay at least 15% tax across the world and if they have paid an excess tax somewhere, it has to be redistributed to the geographies where they have made the income. So, if India has to be eligible for that plan, they have to give up this (2%) levy,” Vijay said.
Tax lawyers, however, flagged that the removal of the levy could pose a challenge for Indian companies offering services such as online travel bookings.
“So far, Indian companies had an advantage with global companies based in Ireland, Mauritius and the US providing these services having to pay an additional tax…that advantage gets diluted,” a direct tax lawyer said.
Gaurav Mehndiratta, partner and national head of corporate and international tax at KPMG in India told ET that withdrawal of the equalisation levy is a significant step, long-awaited by the global taxpayer community.
“The lack of clarity in its interpretation and inconsistent application across different sectors and transactions made it a contentious issue. Its removal aligns with India’s commitment to withdraw the levy as part of OECD’s Pillar Two solution,” he said.
Mehndiratta, however, said that with the proposal to cease the equalisation levy from August 1, questions about its applicability for July this year may arise, as the due date for depositing the levy is August 7. “Any clarification from the government on this issue would be greatly appreciated,” he said.
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Source Link: https://m.economictimes.com/tech/technology/tax-experts-welcome-scrapping-2-equalisation-levy-on-foreign-digital-service-providers/amp_articleshow/111966871.cms
Union budget tax: Tax experts welcome scrapping 2% equalisation levy on foreign digital service providers:
The contentious equalisation levy of 2%—on digital companies, online education-providing firms, and …