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Photo: iStock
Photo: iStock

Digital tax not aimed at US firms, says govt

The tax is fair and aimed at all offshore digital companies accessing the Indian market, the govt said

The Narendra Modi administration has told the US that the 2% tax on e-commerce, which New Delhi had introduced in April, was a fair, reasonable and non-discriminatory tax aimed at all offshore digital companies accessing the Indian market and is not aimed at American companies.

Responding to the probe initiated by the US trade representative (USTR) into digital services taxes, India said its ‘equalization’ levy on e-commerce players was consistent with global tax treaties, as well as the World Trade Organization (WTO) regulations, a document uploaded by the US government on Friday showed.

India introduced the equalization levy in 2016 on payment made to non-resident technology firms, such as social media platforms, for hosting online advertisements targeting Indian consumers. The scope of this levy was expanded in the Finance Act, 2020, to include e-commerce supplies by non-resident players. This levy applies on payments made to entities that do not have a physical presence in India. Therefore, the I-T department has no other way to tax such income earned from the country.

India drew the Trump administration’s attention to a recent US Supreme Court ruling, which clarified that physical presence was not required for levying sales tax by a state if online sales is made to buyers in the state. This principle echoed the legal principle followed in India, too, it added.

India also sought to reassure the US that the levy was equally applicable to all offshore e-commerce players above the specified threshold and was not specific to American firms.

New Delhi’s response showed it had no intention to defer or rescind the provisions of the levy, but to provide clarifications and resolve ambiguities, said Sandeep Jhunjhunwala, partner, Nangia Andersen Llp, a consultancy.

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