Taxation Of The Digital Economy In India: An Analysis Of The Equalisation Levy And The Global Minimum Tax
Anshika Kapoor, B.B.A. LL.B., Bharati Vidyapeeth University
ABSTRACT
The taxation of the digital economy presents a structural challenge to international tax rules designed in an era when economic value was created and taxed at the point of physical presence. Digital business models allow multinational enterprises to generate substantial revenues from users and markets in which they have no taxable establishment, exploiting the mismatch between the nexus rules of the existing treaty framework and the economic reality of value creation in a connected world. India has been among the most active jurisdictions in the world in attempting to address this challenge through unilateral measures. This paper analyses the evolution and legal character of India's Equalisation Levy, introduced in 2016 on online advertising services and expanded in 2020 to e-commerce operators, as well as the Significant Economic Presence doctrine introduced in 2018 as an amendment to the nexus rules of the Income Tax Act, 1961. It then turns to the multilateral response the OECD/G20 Inclusive Framework's two-pillar solution examining the architecture of Pillar One's reallocation of taxing rights and Pillar Two's global minimum tax of fifteen percent, and assessing India's evolving position within those negotiations. The paper analyses the significance of India's decision in the Finance (No. 2) Act, 2024 to withdraw the two-percent Equalisation Levy on e-commerce operators, a step taken in anticipation of Pillar One implementation, and considers the implications of that withdrawal given the continued delays in finalising the Multilateral Convention on Amount A. It argues that India's experience with the Equalisation Levy illustrates both the practical effectiveness and the legal fragility of unilateral digital taxes, and that India's interests in the Pillar Two negotiations are more convergent with the emerging international consensus than its historical positions on taxing rights might suggest, while its interests in Pillar One remain complex and conditional.
Keywords: Equalisation Levy; Digital Economy Taxation; Pillar One; Pillar Two; Global Minimum Tax; Significant Economic Presence; India; OECD/G20 Inclusive Framework.
