The Not-So-Great Equaliser Tax

Context: The equalization levy proposed by the Finance Act 2020 on overseas e-commerce operators can have negative effects on urgently needed growth and employment in India.

Equalisation Levy: It was first introduced in 2016, at 6%, to be imposed on the revenues generated on B2B (business-to-business) digital advertisements. 

• In recent Finance Act 2020, its scope was expanded to include E-commerce players and intermediaries.

Critique of Equalisation Levy:

• Ambiguities: in the definition of ecommerce, applicability of exclusions

• Without Stakeholder consultation: Error in analysing the impact on the sector, which has immense potential for FDI , trade negotiation with the US and ongoing deliberations at OECD.

• Side effects of One-Size fits all: Failing to consider that companies that are venturing into e-commerce while simultaneously displaying advertisement could be imposed this levy twice.

• Effect on MSMEs: Most of the Indian SMEs often use international e-commerce platform and rely on services for backend operations to reach customer within India.

• this will impact the cost competitiveness of startups and small businesses.

Way Forward: Besides comprehensive stakeholder consultation, an impact assessment would have been a logical measure to pursue before such a tax policy measure.