Foreign Policy Watch: India-United States

US investigation into India’s Digital Services Tax (DST)


From UPSC perspective, the following things are important :

Prelims level: Digital Services Taxes

Mains level: Read the attached story

The US government has announced the further suspension of punitive tariffs for six months on India, Austria, Italy, Spain, Turkey, and the UK while it continues to resolve the DST investigation amid the ongoing multilateral negotiations at the OECD and the G20.

Do you remember?

GAFA tax—named after Google, Apple, Facebook, Amazon—is a proposed digital tax to be levied on large technology and internet companies.

What are the Digital Services Taxes in India?

  • The NDA government had moved an amendment in the Finance Bill 2020-21 imposing a 2 percent digital service tax on trade and services by non-resident e-commerce operators with a turnover of over Rs 2 crore.
  • The new levy has expanded the ambit of the equalization levy for non-resident e-commerce operators involved in the supply of services, including the online sale of goods and provision of services.
  • E-commerce operators are obligated to pay the tax at the end of each quarter.
  • Estimates by the USTR indicate that the value of the DST payable by US-based company groups to India will be up to approximately $55 million per year.

Also read:

What are Digital Services Taxes?

What is the story?

  • The US is focused on finding a multilateral solution to a range of key issues related to international taxation, including our concerns with digital services taxes.
  • It is trying to reaching a consensus on international tax issues through the OECD and G20 processes.

Investigation regarding DST

  • The US has conducted a year-long investigation into digital services taxes imposed by countries, stating that they are against tech companies like Apple, Amazon, Google, and Facebook.
  • It had determined that the digital services taxes adopted by Austria, India, Italy, Spain, Turkey, and the UK has discriminated against US digital companies and were inconsistent with principles of international taxation, and burdened US companies.

What’s the case against India?

  • In the case of India, the USTR’s proposed course of action includes additional tariffs of up to 25 percent ad valorem on an aggregate level of trade.
  • Around 26 categories of goods are in the preliminary list of products that would be subject to the additional tariffs.
  • This includes shrimps, basmati rice, cigarette paper, cultured pearls, semi-precious stones, silver powder and silver articles of jewelry, gold mixed link necklaces, and neck chains, and certain furniture of bentwood.

Why does India need DST?

  • The agenda to reform international tax law so that digital companies are taxed where economic activities are carried is still a work in progress.
  • Due to this, countries are worried that they might cede their right to tax incomes. Therefore, many countries have either proposed or implemented a digital services tax.
  • The proliferation of digital service taxes (DSTs) is a symptom of the changing international economic order.
  • Countries such as India which provides large markets for digital corporations seek a greater right to tax incomes.
  • The taxation of the digitalized economy turned out to be a relatively contentious issue because there is a huge asymmetry in digital service providers and consumers.

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