India on Thursday said the two percent equalization levy does not discriminate against US companies as it applies equally to all non-resident e-commerce operators irrespective of their country of residence. The comments came in the backdrop of a US Trade Representative (USTR) investigation which has concluded that India's two percent digital services tax on e-commerce supply discriminates against American companies and is inconsistent with international tax principles.

In a statement, the commerce and industry ministry said there is no retrospective element as the levy was enacted before the 1st day of April 2020, which is the effective date of the levy. It also does not have extra territorial application as it applies only to the revenue generated from India, the ministry said. The purpose of the equalization levy is to ensure fair competition, reasonableness and exercise the ability of governments to tax businesses that have a close nexus with the Indian market through their digital operations.

 The levy, it said, is a recognition of the principle that in a digital world, a seller can engage in business transactions without any physical presence, and governments have a legitimate right to tax such transactions.

"However, in the absence of the EL (Equalisation Levy), non-resident e-commerce operators (not having any Permanent Establishment in India but significant economic presence) are not required to pay taxes in respect of the consideration received in the e-commerce supply or services made in the Indian market," it added.

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