Last week, India announced that digital service providers will be subject to a 2% tax. This tax, also known as equalisation levy, will be charged on the services provided in India where the payments are taken abroad.
E-commerce companies such as Amazon and eBay will also be affected by the tax. In fact, any overseas platform that streams, advertises, or sells goods to an Indian IP address will be taxable, according to the new law that is set to be implemented starting April 1.
Given the ongoing circumstances surrounding the COVID-19 pandemic, Google and Facebook have asked the tax to be deferred by at least six months, Reuters reported. India, on the other hand, is looking to boost its tax reserves, which will also provide the country with additional resources to fight the coronavirus.
India's internet users are increasing at a fast pace and so is the country's e-commerce and digital ad markets, making it extremely attractive for Amazon and other players. However, the amount of revenue that can be generated by the new tax remains unclear.
The technology giants seem to have been taken by surprise by the tax. India's finance minister did not make any mention of the levy during her budget speech in February. The levy was reportedly included in the Finance Bill on March 23.