The Indian government has told the US that it will not reverse its decision to impose a tax on the income that global tech firms are receiving from selling their services in India. The digital tax is neither "discriminatory nor extra-territorial in nature", highly placed government sources told Sputnik on Friday.
"The 2 percent levy is prospective in nature and it is entirely consistent with India's commitments under the World Trade Organisation and international taxation agreements," an official said while expressing regrets over the US probe.
The US considers the digital tax as a way to target American tech giants like Google and Amazon. American firms claim that it remains unclear on which transactions they should pay the tax, which comes into force in April 2020.
The question of the payment scale also remain uncertain. Moreover, since “sales via digital platforms” is such a vast term, it remains under question if sales made through emails will also be liable for the two percent equalization levy.
Although agreeing that India does need to be more specific with its terms and instructions, Indian analysts believe that the country will not be the last to impose such a levy on foreign players.
“India is not the only country to levy such charges nor we will be the last. Agreed, some clarification is needed when we see the overlapping taxation structure when two countries are involved. Global companies do see it as a discriminatory move by Indian Government on the offset but it may not be so,” Achen Jhaker, a senior tech analyst, told Sputnik.
Since the tax upset has global companies, especially from the US, it may impact any trade agreement between India and the US, talks about which are ongoing, according to the Indian Commerce Ministry on 16 July. US President Donald Trump announced in February that the two countries may sign a limited trade deal in the coming months.
“We are being charged a large number of tariffs. If they want a deal with us, they will agree. Harley Davidson has to pay the tremendous tariffs in India but that's not the case when India sends its motorcycles to the US. There is almost no tariff," Trump had said during his first official visit to India earlier this year.
“I seriously doubt there will be any effect on the Free Trade Agreement between India and US because of this. When we get more clarity on issues sounded by off-shore companies, it will become a part of normal business for them,” Jhaker noted.
In India, international companies are taxed at a rate of 40 percent but several firms that have their sales online have so far escaped tax. The United States Trade Representative – the government agency responsible for developing and recommending United States trade policy to the president – is initiating an investigation into the imposition of digital taxes in nine countries, including India.