Industry

Start-ups, SMEs write to govt. on equalisation levy

Domestic SMEs and start-ups have written to Revenue Secretary Ajay Bhushan Pandey complaining about the equalisation levy they have to pay to foreign companies doing business in India, resulting in increased costs as well as lost revenue for the government.

The start-up sector, represented by LocalCircles, held a meeting with Mr. Pandey on July 16 and discussed several aspects of direct and indirect taxation affecting the sector.

Among the issues discussed was the equalisation levy that SMEs and startups have to pay to foreign companies sending invoices from abroad for services rendered within India.

“Many foreign companies operating in India despite having sizeable sales and marketing activities and revenues in India, continue to invoice Indian start-ups and SMEs from their overseas office,” the letter submitted to Mr. Pandey, following the meeting, said.

“As a result, Indian start-ups and SMEs are required to deposit 6% equalisation levy on behalf of these foreign companies which leads to additional compliance and cost burden on the start-ups and SMEs,” they said in the letter.

The equalisation levy, introduced in 2016, is a direct tax on payments made by residents to non-resident companies for online advertisement, provision of digital and advertising space or any other facility or service for online advertisement.

The complaint by the SMEs and start-ups is that many companies, despite doing business in India, were sending invoices from abroad, thereby making their clients pay the equalisation levy.

“Since this is a levy, they [SMEs and startups] are unable to claim Input Tax Credit for this cost incurred,” the letter added. The letter also pointed out that, not only was this increasing the compliance costs for small companies, it was also losing the government tax revenue since these companies were not providing invoices from within India.

In order to rectify this, the start-ups have requested the government to mandate that “any global corporation having sales and marketing operations in India must be required to invoice their customers in India from a registered entity in India.”

Their suggestion is that if a global corporation has one million citizens of India registered with them or has 100 paying customers (businesses or citizens) or annual revenues of over ₹10 crore from customers in India, then they must be required to invoice all Indian customers from their India entity.

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Printable version | Apr 22, 2021 3:12:40 AM | https://www.thehindu.com/business/Industry/start-ups-smes-write-to-govt-on-equalisation-levy/article28775782.ece

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