Will Budget 2021 slow down the digital tsunami?

 The govt has been responsive to the needs and asks of industry and keenly focused on Ease of Doing Business. We hope that answers to some of the ambiguities find their way into the upcoming budget

The Indian government introduced provisions for Equalisation Levy (EL 1.0) on digital advertising and related services in 2016. This levy was extended to a wide variety of digital activities through the Finance Act, 2020 (EL 2.0). EL 1.0 was introduced based on the work of the Organisation for Economic Cooperation and Development (OECD) under the Base Erosion and Profit Shifting Project under Action Plan 1 on Digital Economy. While the Action Plan 1 did not give any specific recommendations, it discussed a few alternative approaches, one of them being an Equalisation Levy-type provision, which India adopted.

Subsequently, OECD itself decided that more work was needed to evolve a consensus approach to address the challenges of the Digital Economy and set up the Inclusive Framework. The Inclusive Framework has since made recommendations referred to as Pillar 1 proposals which provide an approach by which digital businesses could be taxed. However, the proposals are still under discussion and a complete unity is yet to emerge among all countries. India and the US, two key stakeholders, are also not fully aligned to the current proposals.

Meanwhile, an international consensus has remained elusive, even as many countries have legislated unilateral measures similar to EL to tax digital companies. Developed countries like the UK, France, Australia, Spain, Austria, etc, and many developing countries like Indonesia, Turkey, Malaysia, Chile, etc, have proposed or already implemented such levies. EL2.0 was introduced by India in the wake of these developments. Ideally, countries should wait for an international consensus, which can avoid risks of double taxation that can be detrimental for the digital ecosystem. However, the counter from countries is that such a wait cannot be inordinate, and that the unilateral measures would be withdrawn once such a consensus emerges. While there is no official line from India on this, it is expected that if an international consensus emerges, India would reconsider EL 1.0 and EL 2.0.

Read More : Budget 2021