SUMMARY
Nine lobbying groups have written a joint letter to the Indian government to delay the tax
The government imposed a 2% tax on all transactions of digital services where the money goes abroad
The US government raised the flag on the government’s decision to launch this tax
In response to the government’s plan to bring a new digital tax, which will impact tech giants like Facebook and Google, nine lobbying groups including the US Chamber of Commerce have urged the government to delay the rollout as they are already facing disruptions due to the coronavirus outbreak.
The Indian government imposed a new 2% tax from April 1, on all transactions of digital services, where foreign companies take the money out of the country. Ecommerce platforms like Amazon also need to pay this digital tax.
In a joint letter, the nine groups have urged the finance minister to delay the tax by at least nine months. These groups, from the US, Europe, Asia and Australia, have also urged for an industry-wide consultation before implementing this tax.
The letter, accessed by Reuters, reads, “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).”
These members stressed that India is a critical market in which many are deeply invested. Besides the US Chamber of Commerce, Washington-based Information Technology Industry Council, the Asia Internet Coalition and DigitalEurope also signed the letter.
In India, many foreign companies avoided the tax system by billing through their offshore establishments. However, with the new digital tax, the government is aiming to ensure that tax from these sales remains in India. The tax is also applicable to companies which earn advertising revenues by targeting Indian consumers. Some of these companies are Google and Facebook.
Why Is The US Angry?
The Indian government had inserted digital tax in the budget via an amendment passed in March. Since it was not a part of the annual Budget, many foreign companies and trade organisations are criticising the government for bringing such a proposal at a time when most of the companies are already facing huge losses.
The US government had already cautioned the Indian government against the implications of any digital tax, popularly known as Google Tax, or equalisation levy imposed on tech giants.
Alliance for Fair Trade with India’s Roger Murry said that 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,” he added.
Meanwhile, US authorities have raised concerns about certain other provisions. Some of the new rules of the ecommerce policy which gives preference to domestic products over foreign entities are being criticised by several global trade organisations. Besides this, the ecommerce policy also talks of data localisation requirements, restrictions on cross-border data flow, expanded grounds for forced transfer of intellectual property and proprietary source code.
