The rapid growth of the digital economy has fueled a need to devise a globally acceptable, consensus-based mechanism to effectively tax the ‘digital economy’. While efforts for a global consensus are underway by the OECD, many countries such as France, Turkey, Italy, Austria, United Kingdom etc., have either proposed, announced or implemented, a Digital Service Tax (‘DST’) as an interim unilateral measure to tax digital companies.

Taking a cue from the G20 / OECD BEPS Action 1, India also introduced Equalisation Levy in 2016 (‘EL 1.0’) at the rate of 6% on non-resident companies engaged in online advertisement and related activities. The Indian government further expanded the scope of EL in Finance Act, 2020 to include a levy of 2%, effective from 1 April 2020, on consideration received by an ‘e-commerce operator’ from ‘e-commerce supply or services’ (‘EL 2.0’).

The first instalment of EL 2.0 was due on 7 July 2020. The stakeholders expected the government to defer the levy for some time, considering the COVID-19 crisis and to release clarifications on the scope of the levy. On the other hand, the United States Trade Representative also initiated an investigation, famously known as ‘the Section 301 investigation’ against India, the European Union and host of other nations on the unilateral levy of digital tax.