The "sudden" imposition of equalisation levy on e-commerce companies without permanent establishment in India is shocking, especially in the current challenging times, and a wider stakeholder consultation is needed, the Internet and Mobile Association of India (IAMAI) said on Tuesday.
The industry body, which represents the digital services sector in India, said it has reached out to the government on this matter on behalf of the sector at large.
IAMAI pointed out that the Budget Speech of Finance Minister Nirmala Sitharaman did not have any such suggestions.
"Since mid of March, the entire sector was caught up in the impending challenge of COVID-19 and the restrictive counter-measures much like the rest of the economy.
"The Finance Bill which was finally adopted by Parliament on March 23 amidst this chaos suddenly imposes this levy effective from April 1, 2020, thereby barely giving 7 days' notice to the sector for implementing this levy," it added.
The levy, which is already paid by digital advertising companies like Google, would tax e-commerce companies without permanent establishment in India at 2 per cent.
IAMAI said the imposition of the levy comes at a time when e-commerce services incidentally are expected to play a critical role in abating the COVID-19 crisis.
"This sudden imposing of an additional levy at such times will only make matters worse, as it will require businesses to make complicated changes to their internal systems, accounting and billing mechanisms in such short notice, that too in such challenging times of lockdown and work from home, which makes it all the more arduous," IAMAI said.
This will affect not only the operation of such services but also the well-being of the economy and society, at large presently banking on such services at times of dire essentials, it added.
The association has appealed to the government to desist from imposing this levy at present and requested for wider stakeholder consultation on the matter.
Equalisation levy (EL), which was first introduced in 2016 for digital advertisement platforms, was in the context of the ongoing BEPS negotiations under the OECD.
The BEPS discussions have come a long way beyond that, and the discussion initiated by the CBDT on a new formula for denoting virtual Permanent Establishment (PE) and Profit Attribution are a logical extension of the global process, IAMAI said.
"A sudden imposition of EL suggests reversing the process and this raises grave concerns amongst the digital industry about the future of taxation regimes in India for digital service providers," it added.
E-commerce players like Amazon and Flipkart whose headquarters are not in India potentially have to pay the equalisation levy from the next financial year.