In order to bring digital transactions under the tax gambit, Government of India has imposed a 2% equalisation levy on non-resident companies.
Although this was largely meant for e-commerce and digital media companies, which have presence in India but their billing is done in international markets, the Society of Indian Automobile Manufacturers (SIAM) has stressed the need to clarify the scope of the 2% equalisation levy particularly for the auto sector.
The equalisation levy is intended to impose a tax on payments made to foreign beneficiaries for digital services provided. However, the amendments proposed under the Finance Bill 2021 may inadvertently introduce interpretation issues to cover many overseas manufacturing companies having subsidiary manufacturing entities in India, particularly in the automotive sector, under foreign collaborations or licencing arrangements.
In the press statement, SIAM said the current definitions of “e-commerce operator”, “online sale of goods” and “online provision of services” in the Finance Act, used for the purpose of equalisation levy, have created a grey area, specifically for cases where there is partial online communication of placing purchase orders, through digital platforms, followed by the physical delivery of goods and payments made via authorised banking channels.
Seeking clarity on the applicability of equalisation levy, Rajesh Menon, Director General, SIAM said digitalisation is used in the auto sector as a matter of administrative convenience and for increasing efficiencies – not for taking a final commercial decision on sale and purchase.
“Actual commercial decisions are offline and done within the overall master agreement in the form of a licence agreement or JV Agreement, etc. Therefore, internal digital system for supply-chain management should not fall within the provisions of equalisation levy,” he said.