India dismisses USTR’s claims on digital tax on foreign e-com companies

NEW DELHI:  India on Wednesday defended its two per cent tax on digital companies earning revenues in India without being physically present here such as Google and Facebook.

The tax was sharply criticised by the US Trade Representative last month which termed it as “discriminatory.”

“If there is an economic benefit from a certain jurisdiction then there has to be some taxation in that jurisdiction,” Commerce Secretary Anup Wadhawan said at a post-budget briefing here.

In the annual budget presented on Monday, the government had clarified that the ‘digital tax’ or equalisation levy would also apply to global net-based companies even if they do not own the goods or provide the services on their platforms and if any part of the transaction is online.

“Organisation for Economic Cooperation and Development (OECD) is also moving in that direction (taxing e-commerce firms even if they were not physically present),” Wadhawan said.

In its report presented in early January, the US Trade Representative had said its “investigation indicates that India’s Digital Services Tax discriminates against US digital services companies.”

Underlining the ‘discrimination’, the report pointed out that of the firms subjected to India’s equalisation levy of 2 per cent, 72 per cent are US companies.

Indian officials point out that the levy is only on sales in India and does not tax sales outside India. USTR has called out digital taxes imposed not only by India but also France, Italy and Turkey as discriminatory.

India and the US have been in talks to work out a trade pact which could see India regaining certain duty-free trade concessions that it used to enjoy earlier.

However, issues like the digital tax have been bogging down progress in the talks.

A bill on equalisation levy clarifies ecommerce supply or service to mean ‘online sale of goods’ and ‘online provision of services’, which shall include one or more of the following online activities, namely: acceptance of offer for sale; placing of the purchase order; acceptance of the purchase order; payment of consideration; or supply of goods or provision of services, partly or wholly would attract the levy.