Global industry bodies write to FM Nirmala Sitharaman seeking delay of ‘Digital Tax’

On April 1, India imposed an ‘equalisation levy’ where income generated by a foreign digital company in India will now be taxed at 2%.
Global industry bodies write to FM Nirmala Sitharaman seeking delay of ‘Digital Tax’
Global industry bodies write to FM Nirmala Sitharaman seeking delay of ‘Digital Tax’

After India implemented a new 2% tax on foreign companies earning revenue in India for digital services, nine global industry and trade associations from across the world wrote to Finance Minister Nirmala Sitharaman, urging her to delay the equalisation levy by at least nine months.

On April 1, India extended the equalisation levy to cover all overseas e-commerce companies through an amendment to the Finance Bill, 2020, where income generated by a foreign digital entity in India will be taxed at 2%. With this being levied on the sale of both goods and services, it covers a range of companies — Amazon, Alibaba and Netflix among others. The equalisation levy is a tax that the government first put in place in 2016 where it taxed global tech giants such as Facebook, Google, among others for advertising online in India.

The industry groups, which include the US Chamber of Commerce, US India Business Council, DigitalEurope, Australian Services Roundtable, Asia Pacific MSME Trade Coalition, Japan Electronics and Information Technology Industries Association, Information Technology Industry Council, among others, wrote to the FM on Wednesday to delay the levy to hold a dialogue and a consultation to take place with all stakeholders.

“In the current circumstances, the timeframe within which this expansive new measure was approved and entered into force allowed for neither the dialogue nor the significant structural changes that would be necessary for impacted firms to effectively implement a levy of this scope and complexity,” the letter stated.

The letter was first accessed and reported by Reuters.

A delayed implementation, the joint letter said, would permit such a dialogue to take place and would play a meaningful role in ensuring that the Government of India can ‘most effectively and equitably achieve its policy objectives’.

“Furthermore, a delay would underscore India's continued support for the ongoing, multilateral negotiations at the Organisation for Economic Cooperation and Development (OECD) on the taxation challenges arising from the digitalisation of the global economy,” it added.

According to the letter, these nine groups represent several companies of every size from ‘multinationals to infant startups and represent sectors from technology to services to manufacturing and more’.

“For all of us, India is a critical market in which many of our members are deeply invested, and many of our members have been designated as essential during the current crisis,” it further stated.

This is not the first time that objections have been raised against the equalisation levy, of the digital tax. Earlier this month, a group of seven industry associations representing companies such as Google, Amazon, Facebook, Microsoft, among others wrote to the United States Trade Representative seeking quick engagement with the Indian government to raise concerns against this levy. This new tax, they said, was highly discriminatory on foreign companies.

As per reports, some foreign companies also reached out to the Central Board of Direct Taxes (CBDT) seeking clarity over several provisions of the tax, which according to them could cause issues in interpretation.

The United States of America too, in a report on trade barriers from the Office of the United States Trade Representative, said this week that the equalisation levy may impede foreign trade and increase the risk of retaliation from other countries where Indian companies do business.

According to the US, the current structure of the equalisation levy represents a shift from internationally accepted principles. These principles suggest that digital taxation mechanisms should be developed in consultation with various countries to avoid double taxation.

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