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Equalization levy proposal will increase taxes on startups to 24%: IAMAI


The Internet and Mobile Association of India (IAMAI) says that the government’s proposal for an equalization levy for startups will severely increase costs for tech startups in the country. The IAMAI says that startups currently have to pay 14.5% service tax to use ad platforms. With the proposed GST, this would be raised to 18% and companies will have to pay an additional 6% equalization levy.

Readers will recall that the during the Union Budget 2016, the government had proposed a 6% equalization levy on B2B online services and advertising, which was dubbed the ‘Google Tax‘.   The government recommended that many other services, even simple online activities such as sending and receiving emails, downloading content and even blogging, would be brought under its ambit.

The IAMAI estimates that the impact of equalization levy on ad platforms will be Rs 429 crore in addition to Rs 906 crore service tax to the government.

Many startups have raised concerns regarding the implementation of the levy and that it is premature to enforce the same. They also said that the costs of the levy will be passed on to customers instead.  More on that here.

The IAMAI also contended that the proposal of an equalisation levy is basis the recommendations of the OECD (Organization for economic cooperation and development) report titled ‘Addressing the Tax Challenges of the Digital Economy’ are patently false. It’s worth noting that the OECD report did not recommend introducing such a levy as an internationally agreed standard at this stage. It did state that countries could introduce one in their domestic laws as an additional safeguard against Base Erosion Profit Shifting (BEPS), provided they respect existing treaty obligations, or include them in their bilateral tax treaties.

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Read more: Ernst and Young’s report “India proposes equalization levy on digital e-commerce transactions in 2016 budget”

Gujarat entry tax for Flipkart

Earlier last week, the Gujarat high court issued a notice to the state government in a petition filed by Flipkart against an entry tax on goods purchased through online marketplaces. The Gujarat government levied an entry tax of 15% for all online purchases on March 31 via the  Gujarat Tax on Entry of Specified Goods into Local Areas (Amendment) Bill.

Flipkart contended that the tax is discriminatory, because there is no such tax is imposed on goods brought into Gujarat though other modes of sale.

Flipkart vs Uttarakhand government

Similary, Flipkart had sued the Uttarkhand government for levying a 10% entry tax for goods purchased in that state, via it’s company Ekart. Also worth noting  is an October 2015 report from the Economic Times that states that ecommerce companies Flipkart, Amazon and Snapdeal nearly stopped delivering products exceeding Rs 5,000 in Uttar Pradesh and Uttarakhand, given the harassment they faced from authorities. In the same report, Snapdeal said that online marketplaces need to be treated as facilitators (as they are in Kerala, Delhi, Rajasthan, West Bengal and Tamil Nadu).

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