New Delhi: In a measure that will be seen as a retaliation against the digital service tax collected from the US tech giants such as Google and Facebook, the United States Wednesday announced the imposition of a 25% tariff on goods and services worth $2 billion imported from six countries, including India, according to a statement issued by the office of US Trade Representative.
The USTR, however, immediately suspended the tariff for up to six months to allow the international negotiations pending at Organisation for Economic Co-operation and Development (OCED) and G20 to conclude.
After a year-long investigation into the digital service tax imposed by these countries against US tech companies such as Google, Facebook, Twitter, Microsoft, and Amazon among others, in January this year, the USTR concluded that the digital tax or Google tax, as it is sometimes referred, was discriminatory against the US companies.
"United States Trade Representative Katherine Tai on Wednesday announced the conclusion of the one-year Section 301 investigations of Digital Service Taxes (DSTs) adopted by Austria, India, Italy, Spain, Turkey, and the United Kingdom," the USTR said in a statement.
"USTR announces, and immediately suspends, tariffs in Section 301 Digital Services Taxes Investigations," it said, adding that the suspended tariffs on goods from six trading partners will allow broader international tax negotiations to continue.
"The United States is focused on finding a multilateral solution to a range of key issues related to international taxation, including our concerns with digital services taxes," said Ambassador Katherine Tai.
Tai said the US government remains committed to reaching a consensus on international tax issues through the OECD and G20 processes.
What is the India-US tax dispute?
To tax the income accruing to foreign internet and e-commerce companies from their India operations, the Union government announced the imposition of an 'Equalization Levy' in the budget speech in February 2016. And a levy of 6% became applicable from June 1, 2016.
This levy at the rate of 6% is collected under the reverse-charge mechanism.
It means that an Indian entity receiving online advertisement services from a non-resident company that may be billing its Indian service recipient from an address located outside India, such as Ireland, will be required to add an amount of 6% over and above the bill raised by the foreign service provider and deposit the tax to the government.
The levy is only applicable to B2B transactions where the value of the transaction in a year is more than Rs 1 lakh.
In the case of GST and erstwhile Service Tax, the service provider adds the applicable tax on the total billed amount, collects it from the service recipient and deposits it to the government.
Whereas in the case of Equalization Levy, the government decided to charge the tax under the reverse-charge mechanism as these global tech giants ordinarily raise bills from their registered offices located outside India, for example, Ireland, which is a low tax jurisdiction that keeps these companies out of the ambit of Indian tax authorities.
Also Read: Uncertainty looms over H1B visas and green cards, says USISPF president
The investigation against digital tax
In June last year, the USTR initiated investigations into digital tax or Google tax, which has either been adopted or were under consideration of 10 countries: India, Austria, Brazil, the Czech Republic, the European Union, Indonesia, Italy, Spain, Turkey, and the United Kingdom.
In January this year, the USTR determined that the digital service tax adopted by the six countries discriminated against the US companies and was also inconsistent with the principles of international taxation, and burdened the US companies.
In March 2021, USTR announced proposed trade actions against the six nations while terminating any further investigation against four countries - Brazil, the Czech Republic, the European Union, and Indonesia as these countries did not implement the digital tax.
Impact on India
The US tariff will cover products such as cooked or uncooked cold-water shrimps and prawns, Basmati rice, some bamboo products, cultured pearls and other precious and semi-precious stones, gold, diamond and other jewellery items, chairs and furniture and some raw material used in the manufacturing of cigarettes.
According to the USTR, a 25% tariff on these and some other products will come into effect from June 2 in the form of additional duties.
The USTR has, however, suspended the imposition of tariff on Indian products up to November 29 when the 180 days period to conclude the international trade negotiations ends.
Also Read: Explained: What is India’s Google Tax and why there is controversy over it
