India and the US extend 2% digital tax on e-commerce deliveries until June 30

India and the United States have agreed to extend the 2% digital tax on e-commerce supplies until June 30, the Ministry of Finance said. The move clarifies that US digital companies operating in India have to pay tax during this period.

According to the statement, the two countries will remain in close contact to ensure mutual understanding of their obligations and will work to resolve any issues through constructive dialogue.

In November 2021, India and the US reached an agreement allowing New Delhi to impose a 2% tax until March 31, 2024, when Pillar 1 of the OECD Agreement on the Taxation of International Businesses and Cross-Border Digital Transactions is implemented.

Earlier, in October 2021, India, the US and 134 other members of the OECD/G20 inclusive framework (including Austria, France, Italy, Spain and the UK) agreed on a two-pillar solution to address these tax challenges.

The Agreement was effective from 1 April 2022 until the implementation of Pillar One or 31 March 2024, whichever comes first, as set out in public statements by both parties (the “24 November Statements”).

As of 18 December 2023, there have been calls to finalise the text of the multilateral Pillar 1 convention by March 2024, with the aim of a signing ceremony by June 2024. However, consensus on the agreement has not yet been reached.

“In light of the above developments, India and the United States have decided to extend the validity of the agreement contained in the November 24 statements until June 30, 2024. All other terms of the interim approach remain the same,” the statement said.

PTI was the first to report the development.

The equalization levy was introduced in India in 2016 to tax digital transactions, particularly on income earned by foreign e-commerce companies from India. It focuses on business-to-business transactions and is commonly known as the “Google tax.”

It was introduced to tax e-commerce companies that are based in India but have their accounts receivable in international markets. These companies often avoid the country’s cross-border tax system by billing their customers from offshore entities. The tax is aimed at bringing non-resident companies that deal with Indian customers under the ambit of the tax.

Equalization Levy is a direct tax charged at the time of payment by the recipient of the service. It applies when payments exceeding INR 1 lakh in a tax year are made to non-resident service providers.

In 2020 India justified the imposition of 2% the equalisation fee imposed on foreign companies for digital transactions, maintaining that the fee is not discriminatory.

In 2021, India’s equalization levy on non-resident digital businesses had mixed effects across sectors. Companies like Netflix has decided not to charge the tax directly to Indian consumers to keep prices competitive.

Google retweeted The Indian 2% equalisation cess was introduced in April 2020 and applies to customers whose ads were visible in India.