CBDT Report on “Equalisation-Levy” – Tackling the digital economy taxation conundrum
CBDT recently released a 124 page Report of the "Committee on Taxation of E-Commerce" (‘the Committee’) which piloted the induction of 'equalisation levy', proposed by the Finance Bill, 2016. The Committee, in its February 2016 Report, recommended that the levy should be in the range of 6 to 8 % of the gross payment made for specified digital services, the scope of which could be expanded in later years. The Committee had zeroed down on the ‘equalisation levy’ as against the other options proposed in BEPS Action Plan 1, opining that it provided a simpler option that could be adopted under domestic laws without needing amendment to large number of tax treaties. Further, the Committee also suggested that this levy should be outside the Income-tax Act, considering it was not contemplated as tax on ‘income’.
Is the equalisation levy a befitting tax to tackle the digital economy challenges ? By introducing the levy as part of Finance Bill and not the Income tax Act, is the Govt. setting a precedent? Should the government change its stance & allow Foreign Tax Credit against the levy? Will the levy's scope expand like Service tax, which also started off as part of Finance Act and is today a cash cow for the Finance Ministry?