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India's first move to tax 'digital transactions'

24 May 2016

First published in Global Tax Weekly, 19 May 2016

In response to and as a follow-up on BEPS Action Plan 1, the Indian Government had set up a committee to make recommendations. The committee's recommendation on the introduction of an "Equalisation Levy" has been accepted by the government, but only in respect of advertisement services.

In the annual Budget-making exercise for 2016, India introduced the 'Equalisation Levy' as a new chapter outside of existing Indian income tax law.

The proposed levy raises some fundamental questions. These pertain to aspects such as the nature of the levy, i.e., whether it is an income tax or an indirect tax, legality of delegated authority to the executive to notify additional specified services as against the legislature, scope for double taxation on the same income without possibility of credit, ambiguity around gross up where the payer bears the levy, the lack of right to appeal, etc. These aspects create an uncertainty on the scope and manner of the application of the levy.

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Taxand's Take

While the levy is only proposed at this stage, its entry into force does not appear to be distant. India, as with some of the other positions taken in respect of taxes, has taken a bold first step.

Taxand's Take Author