Equalization Levy A Concern For Digital Transactions In The Auto Sector – SIAM

Society of Indian Automobile Manufacturers (SIAM) has stressed the need to clarify the scope of the 2% Equalization Levy.

Equalization Levy is intended to impose a tax on payments made to foreign beneficiaries for digital services provided. However, the amendments proposed under the Finance Bill 2021 may inadvertently introduce interpretation issues to cover many overseas manufacturing companies having subsidiary manufacturing entities in India, particularly in the Automotive sector, under foreign collaborations or Licencing arrangements.

The current definitions of “E-commerce Operator”, “online sale of goods” and “online provision of services” in the Finance Act, used for the purpose of Equalization Levy, have created a grey area, specifically for cases where there is partial online communication of placing purchase orders, through Digital Platforms, followed by the physical delivery of goods and payments made via authorised banking channels.

Seeking clarity on the applicability of Equalization Levy, Rajesh Menon, Director General, SIAM said: “Digitalization is used in the auto sector as a matter of administrative convenience and for increasing efficiencies – not for taking a final commercial decision on Sale and Purchase. Actual commercial decisions are offline and done within the overall master agreement in the form of a Licence Agreement or JV Agreement, etc. Therefore, internal Digital System for supply-chain management should not fall within the provisions of Equalization Levy.”