India faces retaliatory action from US by refusing to withdraw digital equalization tax

The digital equalization tax was introduced when there was no deal on the global tax deal that aims to prevent large digital companies from evading tax

Our special correspondent


New Delhi

Posted on 10.26.21, 02:28 AM

India has exposed itself to retaliatory action from the United States by refusing to immediately withdraw the 2% digital equalization tax on global Internet players. However, he intends to do so when the global minimum tax agreement is in place.

Speaking to Bloomberg on an official visit to the United States, Finance Minister Nirmala Sitharaman said the equalization tax – also known as the Google tax – was introduced by India when there was no no deal on global tax deal to stop big digital companies from escaping. tax in several countries despite significant income in these countries.

“Of course, after we’ve all agreed on an overall minimum tax that (the equalization levy) will have to be withdrawn,” she said.

However, the United States could impose retaliatory duties on India next month on the 2% digital tax on foreign tech majors because it failed to adhere to the deal to immediately restrict the use of such unilateral steps in light of the global digital tax agreement finalized by 136. countries at the Organization for Economic Co-operation and Development (OECD) earlier this month.

Under the agreement, any digital taxes that countries collect from these companies after January 2022 that exceed what they would have to pay under the new rules would be credited against future tax debts of companies in those countries.

In return, the United States agreed to drop its planned tariff retaliation against five countries on the grounds that their taxes discriminated against American companies. The deal does not include two other countries that have imposed taxes on digital services and face tariff threats: India and Turkey, US Trade Representative Katherine Tai said in a statement.

The Office of the United States Trade Representative (USTR) decided in June to suspend for 180 days additional tariffs of up to 25 percent ad valorem at the aggregate level of trade on a large number of items, including basmati rice. , seafood, bamboo, semi-precious stones, and pearls, hoping for a multilateral solution on the issue of digital taxation at the OECD.

However, trade experts said the tariffs may have little impact on Indian exports and the overall economy, given the limited importance of these items in India’s export basket and the United States. inelasticity of demand for most items on the list.

In addition, tariffs against India are aimed at wiping out $ 55 million, which is as much as what India will collect from US businesses through an equalization tax, according to US estimates.

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