India to remain firm on its 2% digital tax even as the US prepares to launch a probe

Prime Minister Narendra Modi and US President Donald Trump going to address their joint press conference at the Hyderabad House in New DelhiBCCL
  • India imposed a 2% digital tax on companies which take payment outside India, sell more than ₹2 crore to Indian customers and don’t have a local firm.
  • The digital tax was included in amendments in March, and it came into effect from April 1, 2020.
  • The US is gearing up to launch a probe into the matter to determine if the tax is discriminatory against companies like Apple, Google, Facebook and Amazon.
  • The US had launched a similar investigation before imposing tariffs on $360 billion worth exports from China.
The Indian government is said to remain firm on its 2% digital tax on companies which take payment outside India, even as the US administration is preparing to launch a probe into the matter.

Widening its tax net, the Indian government included the 2% digital tax in budget amendments passed in March.

This seems to have caught the industry off-guard, as nine global lobbying groups urged the tax be delayed by nine months. These groups also want the government to consult the industry before implementing the tax.

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On the other hand, the Indian government is reportedly ready to defend its tax. It is also said to be prepared to negotiate with the Trump administration in case of an adverse result in the investigation.

Also read: Global lobbying groups call for delay to India's new digital tax

What is this 2% digital tax?

In March, the Indian government passed amendments to impose a 2% tax on companies which take payment outside India.

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For example, if you purchase something on a US website, the said website would be liable to pay a 2% tax. This will apply only if the website has sales of more than ₹2 crore to Indian customers, and it doesn’t have a permanent office in India.

The digital tax is applicable on both goods as well as services, essentially including almost all companies.

What is the US saying?

On June 2, the United States Trade Representative (USTR) announced a Section 301 investigation into digital taxes that have been imposed or are currently under consideration by India, and other countries like Austria, Brazil, the Czech Republic, the EU, Indonesia, Italy, Spain, Turkey, and the U.K.
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This comes after the USTR had launched a similar probe into the digital taxes imposed by France.

Why does the US want to probe this matter?

The USTR investigation is aimed at determining whether the digital tax imposed by India discriminates against US tech giants like Apple, Google, Facebook and Amazon.

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If the USTR finds India’s digital tax to be discriminatory, it could lead to sanctions and tariffs on India’s exports to the US.

The US used the same Section 301 investigation to impose tariffs on $360 billion worth of exports from China.

SEE ALSO:

Global lobbying groups call for delay to India's new digital tax

U.S. probe into India's digital tax not a move of aggression, says Indian government source

Apple, Google, and Facebook can escape higher taxes in India by setting up local firms
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