Australian parliament okays interim trade pact with India

NEW DELHI: The Australian parliament on Tuesday ratified the interim India-Australia Economic Cooperation and Trade Agreement (ECTA), marking a major milestone in India’s efforts to boost global trade.

The ratification also takes the two countries a step closer to ending the problem of double taxation for Indian IT firms operating in Australia.

The deal is India’s first free trade pact with a major western country.

Australia went to polls in May after completing trade negotiations with India under the then-Liberal Party government. However, the election was won by the Labour Party, ending a decade of conservative rule. Despite the change in government, the deal sailed easily through the Australian parliament as the country seeks to diversify its exports from the Chinese market.

It now needs the assent of President Droupadi Murmu to take effect. To be sure, this is an interim deal, which will be followed by talks on a full fledged agreement.

“For the first time, we have got visas for Indian chefs and yoga instructors, and we have also got a commitment that students who go from India to study in Australia get an opportunity to work there depending on their level of education,” commerce minister Piyush Goyal said at a press conference.

The current Australian government worked hard to advance all processes expeditiously to ensure Australia is in a position to implement the free trade agreement before the end of 2022, Anthony Albanese, Prime Minister of Australia, said in a statement.

“The Australia-India Economic Cooperation and Trade Agreement (ECTA) is a great opportunity for Australian businesses as it will open up new markets to reach around 1.4 billion consumers in the world’s fastest-growing major economy,” Albanese added.

A major area of interest is Australian wines. As part of the deal, Australia will allow duty-free imports of Indian wine. In return, India will cut the duty on Australian wines from 150% to 100% for bottles priced at $5, down to 50% in 10 years. The duty on bottles priced at $15 or more will be cut from 150% to 75% and then 25% in 10 years.

According to industry estimates, Indian IT firms lost more than $1 billion in taxes due to existing provisions in the Australia-India double taxation avoidance agreement (DTAA), causing double taxation issues for these companies.

Most IT firms take up projects where they do some work on-site, and some from India. However, Australian courts have ruled that even the work done from India can be considered as royalty and taxed according to Australian laws. However, the same income is also taxed in India.

CII said that the trade agreement would allow Indian companies access to cheaper raw material and intermediate goods and help India become more competitive in other markets. It will also help Indian consumers get goods and services at competitive prices and help industries open job opportunities for Indian students studying there, the industry body added.

“Under the pact, Australia is offering zero-duty access to India for about 96.4% of exports (by value) from day one. This covers many products that currently attract 4-5% customs duty in Australia. IT sector will be the biggest beneficiaries of the India-Australia FTA as services would play a crucial role in the trade pact,” CII said. The Federation of Indian Export Organizations said India’s goods exports to Australia will reach $15 billion by 2025 from $6.9 billion in 2021, taking full advantage of ECTA, while services should move to $10 billion by 2025 from $3.9 billion (provisional).