From April 1, the government imposed a new 2% tax on foreign billings
Nine lobbying groups including the US Chamber of Commerce have urged India to delay a new digital tax that will hit firms such as Facebook and Google as they are battling the fallout of the coronavirus, a letter seen by news agency Reuters showed.
From April 1, the government imposed a new 2 per cent tax on foreign billings, or transactions where companies take payment abroad for digital services provided in the country. The tax also applies to foreign e-commerce transactions on sites such as Amazon.com.
The tax, inserted into Budget amendments passed in March, caught the industry off guard as it was not part of the main proposals presented by the Finance Ministry in Parliament a month earlier.
The nine groups, from the United States, Europe, Asia and Australia, wrote a joint letter to Finance Minister Nirmala Sitharaman on Wednesday, urging that the tax be delayed by nine months and for an industry-wide consultation before implementation.
"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 companies to comply)," said the letter.
"India is a critical market in which many of our members are deeply invested," it added.
Other than the US Chamber of Commerce, signatories included the Washington-based Information Technology Industry Council, the Asia Internet Coalition and DigitalEurope.
The government's new tax is seen to be aimed at taxing foreign companies which have a significant local client base in the country but were billing them through their offshore units, effectively escaping the country's tax system.
The tax also applies to advertising revenue earned from companies overseas if those advertisements eventually target customers in India.
Google is particularly concerned that it would not be able to swiftly identify countries where such advertising arrangements were in place, Reuters has reported.
The tax further risks souring India's trade relations with countries such as the US that had already been concerned with New Delhi's stricter rules for sectors such as e-commerce.
"The new levy came out of nowhere ... It will disrupt India's trade relations perhaps in ways the drafters of the levy did not anticipate," said Roger Murry of the Alliance for Fair Trade with India, a group of US trade associations.
