A US Trade Representative (USTR) investigation report recently said New Delhi’s 2 per cent tax on digital economy is ‘unreasonable or discriminatory’ as it exempts Indian companies and targets non-Indian firms. It potentially attracted withdrawal of US trade concessions or duties on Indian exports. The tax (equalization levy) came into force in April last year.
The levy covers all sorts of digital e-commerce transactions in India as well as those transactions which use Indian data if the offshore digital economy firm’s revenue from India is ₹2 crore or more. The idea is to tax payments made to offshore entities which do not have a physical presence here and therefore the income tax department cannot subject such income earned from India to tax.
The office of the USTR said in a statement that of the 119 companies that it identified as likely liable under the digital services tax, 86, or 72 per cent, were American. The decision hit US firms dominating the technology sector.
“The USTR has determined that India’s Digital Services Tax (DST) is unreasonable or discriminatory and burdens or restricts US commerce and thus is actionable under Section 301 (of its Trade Act),” said the probe report.
This section authorises the US government to withdraw trade benefits, impose duties and import curbs or deny federal permits to supply services in some sectors. Also, it can engage with a foreign government to phase out the policy covered under the probe and offer compensatory trade benefits.
The USTR pointed out that this levy covers revenue generated from a broad range of digital services offered in India, including digital platform services, digital content sales, digital sales of a company’s own goods, data-related services, software-as-a-service and several other categories of digital services.
This has huge implications for US firms. “USTR estimates that the aggregate tax bill for US companies could exceed $30 million per year,” the report said.
