As of April 1st, a new 2% tax on online sales, the “Equalization Levy” (EL), came into force in India which is having a major impact on Indian diamond manufacturing and trading companies who buy rough or polished stones via online channels, such as online auctions or tenders, trading platforms. Foreign companies that are considered an “e-commerce operator”, defined as a non-resident that owns, operates or manages a digital or electronic facility or platform for online sale of goods or the online provision of services”, will be forced to charge 2% on top of the sales amount, when selling to Indian companies, money which will then have to be transferred to the Indian tax authorities by the e-commerce operator on a quarterly basis.
The tax is applicable when services or goods are sold via online channels to an “Indian resident or a non-resident using an Indian IP address”, although it is unclear at the moment how the government will track IP-addresses. To clarify, if for example a tender house sells rough diamonds via a subsidiary abroad and invoices to an Indian company, the E.L will apply and the company will pay 2% more on the agreed sales price than when the rough diamonds are sold and invoiced to, for example, an Antwerp company. Similarly, when an Indian company buys polished stones via an online B2B platform, that platform will have to charge an additional 2% on the sales price, compared to what it charges to a non-Indian company.
In its 2020 Finance Bill, ¬Government adopted the amended EL as an extension of an earlier levy that was imposed in 2016 to address tax challenges posed by increased digitization of the economy.
Experts say the tax will apply to a host of B2B instances that are becoming common practice in “the new normal” caused by the COVID-19 pandemic restrictions on travel and movement of goods. This includes online solutions for the sale of rough through online tendering solutions, e-sights and auctions but also to any online B2B trading platform where polished diamonds are traded for example. The tax rate of 2%, experts say, applies to the transaction price as well as any commission charged by the operator.
Providers of services are obliged to request an Indian tax identification number (PAN), and will have to comply with quarterly filing and payment obligations to avoid penalties and surcharges.