Indian Digital Tax Differential | DST | USTR

Indian Digital Tax Differential | DST | USTR 

United States Trade Representation (United States Trade Representative – USTR) has stated that the Digital Service Tax (DST) adopted by India, Italy and Turkey discriminates against US companies and is inconsistent with international tax principles.

United States Trade Representative: (USTR)

  • It is an organization responsible for the development and coordination of international trade in the United States.
  • Section 301 of the US Trade Act gives the USTR a broad right to investigate and respond to unfair or discriminatory actions taken by an external country that may negatively affect US commerce.
  • This section, adopted through the Trade Act of 1974, allows the US President to impose tariffs or other restrictions on foreign nations.
  • However, the law also presents the option of compulsory consultation with trading partner countries.

Digital Service Tax (DST)

  • This tax is levied on the revenue received by companies in return for providing digital services. This tax mainly applies to digital multinationals such as Google, Amazon and Apple.
  • The Organization for Economic Cooperation and Development is currently in talks with over 130 countries to optimize the international tax system. One goal of this action is to present solutions to the tax challenges related to the digitization of the economy.

India’s tax on digital companies:

  • The government made an amendment in the Finance Bill 2020-21 to impose a 2% digital service tax on trade and services done by non-resident e-commerce operators with a turnover of more than Rs 2 crore.
  • This effectively expanded the scope of the equivalent levy, which until the previous year applied only to digital advertising services.

USTR test report:

  • Digital service tax is discriminatory in India, as it exempts Indian companies and targets non-Indian firms. These affect US companies dominating the technology industry.
  • 119 companies were identified under the Digital Service Tax, of which 86 (72 percent) were American companies.
  • USTR estimates that the total tax bill for US companies may exceed US $ 30 million per year.
  • The USTR determined that India’s DST is unfair or discriminatory and prohibits US commerce. Thus it is actionable under Section 301, US Trade Act.

Source: Indian Express

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