Home >News >India >US probe into French digital tax may have implications for India

Geneva: The US has launched a probe into France’s planned tax on digital services under the controversial Section 301 of the US Trade Act of 1974, warning Paris, as well as other governments, that the Donald Trump administration will impose unilateral crowbar trade measures if taxes were levied on electronic transmissions in the global internet economy, say analysts.

A day before the passing off the digital services tax by the French Senate, US trade representative Robert Lighthizer said on 10 July that the Trump administration remains concerned about the French “digital services tax (DST)" for unfairly targeting American firms. Lighthizer suggested that “the French DST Bill would impose a 3% tax on total annual revenues generated by some companies from providing certain digital services to, or aimed at, French users".

He maintained that “the tax applies only to companies with total annual revenues from the covered services of at least €750 million globally and €25 million in France... The services covered are ones where US firms are global leaders", Lighthizer said, without mentioning the names of the US companies that are going to be burdened with the proposed French tax. In fact, the French DST is aimed at imposing a tax on all digital companies that have a global turnover of €750 million, and €25 million in France. It would apply to all internet services companies, including those from China, India and other countries.

More importantly, Lighthizer ’s proposed action is a subtle hint to India and South Africa, which called for reconsidering the existing moratorium for not levying customs duties on electronic transmissions, which is set to expire at the end of this year at the World Trade Organization (WTO), said a trade envoy who asked not to be quoted.

India and South Africa had introduced a joint proposal for preserving “policy and regulatory space" for pursuing digital industrialization at the WTO. The two countries had suggested that the time has come to reconsider the existing moratorium for not imposing customs duties on electronic transmissions because of huge revenue and fiscal implications. At the WTO General Council meeting on 17 June, India’s trade envoy J.S. Deepak said the magnitude of the “potential tariff revenue loss" will be around $10 billion for developing countries, as against only $300 million for the WTO’s high-income members.

The developing countries, he said “have the opportunity to generate 40 times more tariff revenue by imposing customs duties on ET as compared to the developed countries, many of which have almost zero bound duties on physical imports of digitizable products".

Citing a United Nations Council on Trade and Development (UNCTAD) study, Deepak said “95% of world’s total tariff revenue loss due to the moratorium will be borne by the developing countries.... Why should the bulk of sacrifice of revenue fall disproportionately on the poorer members of the WTO?"

The Indian envoy also challenged the claim advanced by several developed countries “that tariff revenue loss due to the moratorium can be balanced by imposing of other taxes and internal charges". In reality, “it is very difficult to tax the digital giants operating in our countries without physical presence", he added.

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