Digital services tax in India discriminatory: USTR investigation

New Delhi, January 7

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India’s 2% digital services tax on e-commerce supply discriminates against US companies and is inconsistent with international tax principles, according to a US Trade Representative (USTR) investigation.

The finding paves the way for potential retaliatory tariffs but the USTR did not immediately specify actions to counter such taxes.

USTR’s investigation said the Indian levy discriminates against American companies, unreasonably contravenes international tax principles, and burdens or restricts US commerce.

The latest report of the office of the USTR said “our investigation indicates that India’s DST discriminates against US digital services companies”.

It observed that India’s digital services tax (DST) is discriminatory on its face, as the law explicitly exempts Indian companies, while targeting non-Indian firms.

“The result is that US ‘non-resident’ providers of digital services are taxed, while Indian providers of the same digital services to the same customers are not. This is discrimination in its clearest form,” the USTR report said.

According to the report, an Indian government official also confirmed that the very “purpose” of the DST is to discriminate against non-resident foreign companies, explaining that “[a]ll parts of the digital taxation incident should be on the foreign player, because if the incidence is passed on to the Indian player, then it doesn’t really serve the purpose”. Moreover, it said the DST targets digital services but not similar services provided non-digitally.

According to the report, because US companies are global leaders in the digital services sector, US companies face an inordinate share of tax burden.

Indeed, of the 119 companies that USTR has identified as likely liable under the DST, 86 (or 72%) are US companies, it said. — PTI