The Finance Minister, Nirmala Sitharaman in the Budget 2021 has proposed to impose 2% extra tax on foreign e-commerce companies like Amazon, Flipkart, Microsoft, etc.
The introduction of this tax has come as a surprise for most and the Confederation of All India Traders (CAIT) while welcoming this move of the government stated that the provision amply reflects the intent of the government to crackdown on the the unholy business practices of global e-trailers to monopolise and control Indian e-commerce and retail trade.
The provision has been made in the Budget by proposing amendments to Section 163 sub clause (3), Section 164 clause (cb), Section 165 sub section (3) and clause (b) of The Finance Act, 2016.
The provision will be applicable retrospectively with effect from April 1, 2020. All such foreign companies which are engaged in sale of goods or providing services through any online mode will come under the purview of this provision and will have to pay 2 per cent extra w.e.f. from April 1, 2020.
However, the implementation of the imposed 2% extra tax on foreign e-commerce companies will come with various challenges.
There are some foreign e-commerce industries such as Amazon which provides a platform to sellers and buyers, and receive a fee for such facilitation, here, the buyer pays the seller directly. For such transactions, the equalisation levy would be levied on the commission paid to the foreign e-commerce entity or is there some other criteria.
However, many entities also work on an inventory model. For instance, a hotel booking site that makes bulk purchases and then resells them to customers, in this case the question is whether the 2% tax would be levied on the entire billing amount.
The other hardship which might be faced while implementation of the 2% extra tax would be the difficulty to determine if the Rs 2 crore threshold is breached due to sale, usage of resident Indians’ data.
The amendment to the Finance Bill, 2020 is silent on accounts For Cancellations and Sales Return.
If an Indian resident book an airline ticket on a foreign e-commerce platform and then cancels it then will the equalisation levy be applied?
Further, in case of a sale return, if a resident Indian has purchased goods worth $7,000 from a foreign e-commerce website and has returned goods worth $1,000, it is unclear, whether the tax will apply on net consideration or not.
