Equalisation levy posts 35% growth; overall tax collection remains muted

The collection of equalisation levy, or the so-called Google tax, picked up this financial year, posting 35 per cent growth, even as the overall direct tax mop-up remains muted with a double-digit decline.

The digital levy, aimed to tax non-resident e-commerce operators, gathered Rs 738 crore after the second-quarter instalment deadline against Rs 545 crore collected in the same period last year, suggesting that most large players fell in line after initial resistance.

While the levy applied only to digital advertising services till last year at the rate of 6 per cent, the government this year widened the scope to impose a 2 per cent tax on non-resident e-commerce players from April 1 this year.

It covers players including Adobe, Uber, Udemy, Zoom.us, Expedia, Alibaba, Ikea, LinkedIn, Spotify, and eBay.

Direct tax, net of refunds, contracted by 24 per cent as of October 8 to Rs 3.66 trillion compared with Rs 4.8 trillion in the corresponding period last year.

Gross collection is down 23 per cent to Rs 4.88 trillion and refunds up 8 per cent to 1.22 trillion, according to official sources.

“The trend is in line with the 24 per cent contraction in GDP in Q1. The next quarter will likely see further improvement with the progression of the unlocking process and revival of economic activities,” said a government official.

Hyderabad, with the highest mop-up after Bengaluru, rang up 60 per cent growth in equalisation levy expansion. Hyderabad has reported Rs 227 crore compared with Rs 142 crore in the same period last year.

Although the Silicon Valley of India (Bengaluru) accounted for about half the collection at Rs 351 crore, it saw small growth of 6.3 per cent over last year.

Delhi saw collection grow to Rs 93 crore from Rs 30 crore collected in the same period last year, a growth rate of 210 per cent. Mumbai saw collection grow to Rs 47 crore against Rs 26.3 crore in 2019.

The deadline for the second instalment of the equalisation levy was October 7.

In the first quarter, only about Rs 291 crore was collected by the deadline, July 7, a 30 per cent drop year-on-year, despite the expansion of the levy, as several multinational companies failed to comply with the stiff timeline.

As for overall direct tax collection, Bengaluru is the only jurisdiction that posted growth, at 1.6 per cent, while others have seen double-digit declines.

Mumbai has posted an 18.7 per cent contraction, Delhi 33.3 per cent, Hyderabad 23 per cent, Chandigarh 37 per cent, and Ahmedabad 32 per cent.

Advance tax collection from top jurisdictions fell around 25 per cent, on average, in the second quarter, as against about a 40 per cent decline seen in the first quarter (Q1).

Advance tax is paid as and when earnings happen rather than at the end of the fiscal year. It is an indication of economic sentiment.

The first instalment, or 15 per cent of advance tax, is to be paid by June 15, the second by September 15 (30 per cent), third by December 15 (30 per cent) and the rest by March 15.