The US foreign trade regulator has called India’s equalisation levy on non-resident e-commerce companies to be discriminatory. New Delhi, on the other hand, has maintained that the levy is applicable to all foreign companies and leads to level playing field between domestic and foreign companies in the e-commerce space like Google and Amazon.

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The United States Trade Representative (USTR) on January 6 released a probe report under Section 301 of its Trade Act, as per which the 2 percent equalisation levy charged by India “discriminates against U.S. digital services companies,” “unreasonably contravenes international tax principles,” and “burdens or restricts U.S. commerce”.

India’s imposes a 2 percent tax on revenue generated by non-resident e-commerce companies from activities like digital content sales, data related services, digital platform services as well as digital sales of a company’s own goods.

The report claims that an Indian government official accepted that levy was meant to be discriminatory. “Indeed, one Indian government official confirmed that the very “purpose” of the DST is to discriminate against non-resident foreign companies, explaining that: “

According to USTR, the taxation burden on 86 US e-commerce companies in India will “exceed $ 30 million per year” due to the 2 percent taxation on non-resident companies. The report also says that the levy by India on foreign non-resident e-commerce companies is on revenue on not on income, which is against principles of international taxation.

Section 301 probe is initiated by USTR based on policy actions taken by its trade partners which are deemed discriminatory by its companies. Based on the findings of a Section 301 probe report, the US government is empowered to take retaliatory trade actions.

However, in the case of India, USTR is not taking any action for the time being but has warned that it will continue to "evaluate all options".

Indian government officials maintained that the equalisation levy does not discriminate against US companies. “The Equalisation levied at 2 percent is applicable to non-¬resident e-commerce operator not having a permanent establishment in India. The threshold for this levy is Rs 2 crore, which is very moderate and applies equally to all e-commerce operators across the globe having business in India. The levy does not discriminate against any U.S. companies as it applies equally to all non-resident e-commerce operators, irrespective of their country of residence,” officials in India maintained.

They also stressed that the tax is not retrospective in nature and it does not have any extraterritorial application as it is on revenue generated from India.

(Edited by : Abhishek Jha)

First Published:Jan 7, 2021 2:30 PM IST