Proposed Abolition of Equalisation Levy in India

The Indian government has proposed abolishing the equalisation levy on online advertisements as part of the amendments to the Finance Bill, 2025. This move is likely to benefit American big technology companies and ease trade tensions with the United States as both countries discuss a potential trade deal.

Understanding Equalisation Levy

• Definition: A levy designed to equalize the tax component between resident and non-resident e-commerce companies.
• Current Status: The 6% equalisation levy has been applied since 2016 on digital ads for payments exceeding Rs 1 lakh a year to non-resident service providers.

Reasons for the Proposed Change

• The 6% levy has been in force since 2016, with a 2% levy introduced in 2020 for e-commerce services.
• The United States criticized the levy as discriminatory, leading to the repeal of the 2% levy in 2024, though the 6% levy continued.
• India, the US, and OECD/G20 members agreed on a framework to address digital economy tax complexities.

Expert Opinions

• Amit Maheshwari: The removal of the 6% levy is a step towards showing a more accommodative stance to avoid US tariff retaliation.
• Vishwas Panjiar: The equalisation levy was an interim solution until a global consensus was reached. Its abolition brings certainty to taxpayers and addresses partner nations' concerns.

Context and Implications

• The US had investigated digital services taxes, claiming they discriminated against US tech companies such as Apple, Amazon, Google, and Facebook.
• India also introduced the Significant Economic Presence (SEP) concept to target foreign companies with significant online presence in India.

Reporter Insight

Soumyarendra Barik, a correspondent focusing on technology, policy, and society, has reported extensively on issues affecting big tech companies, including digital taxation and privacy concerns.