The Internet Association has reportedly pressed that action be taken against India for the levy of its 2% digital services tax. According to a Business Standard report, the association, which has Facebook, Google, Amazon, among others as members has said that the equalisation levy is ‘unreasonable and discriminated against US companies’.
The 2% equalisation levy came into effect in India as of April 1. However, given the lack of clarity technology firms missed the July 7 deadline of filing the levy.
The equalisation levy, is a tax that the government first put in place in 2016 where it taxed global tech giants such as Facebook, Google, among others for advertising online in India.
As of April 1, this year, this was extended to cover all overseas e-commerce companies as well through an amendment to the Finance Bill, 2020, where income generated by a foreign e-commerce entity in India will now be taxed at 2%.
With this being levied on sale of both goods and services, it would cover a range of companies from Amazon to Alibaba and Netflix, among others.
The Internet Association said that digital industry believes that digital tax is unreasonable and discriminates against US companies by creating a targeted burden on all US exports to India through the internet.
It also said that even though the tax came into effect, several key details were undefined and also claimed that the tax was put in place to use that money to fund local economic recovery.
These comments were made in comments to the US Trade Representative (USTR) on Section 301 investigation that was launched last month. The Internet Association represents over 40 global technology companies including eBay, Microsoft, Netflix, LinkedIn, Airbnb, Paypal, Indeed, Uber, Spotify, among others.
After raising concerns over the digital tax, the US launched an investigation India, Brazil, Italy and seven other countries and invited public comments, the deadline for which was July 15.
According to the BS report, the Section 301 of the US Trade Act gives the USTR the power to investigate policy action by a trading partner that may be deemed unfair or discriminatory and negatively affects US firms.
Meanwhile, India defended the tax and said that it was consistent with World Trade Organization norms and international taxation agreements and that it was not discriminatory in nature.
It told the US to raise the issue at the ‘appropriate forum, in accordance with provisions for dispute settlement as agreed under specific international agreements’ and said that the government of India would provide required clarifications.
“The equalisation levy does not discriminate against non-resident e-commerce operators. The underlying policy objective and application of India’s equalisation levy is to ensure a neutral and equitable taxation is applicable to e-commerce operators that are resident in India, or have physical presence in India, and those not resident in India,” the government reportedly said.
It also said that it doesn’t discriminate or target any American company saying that the tax applied to all foreign companies irrespective of which country they are from. The purpose of the tax, the government said, was to ensure fairness and healthy competition.