Global Economy

US announces, then suspends punitive tariff over DST on India, others


The United States Trade Representative (USTR) on Wednesday announced punitive tariffs on India and five other countries over their digital services taxes (DST), but immediately suspended the levies to allow time for international tax negotiations to continue.

The USTR said the goods that would face the punitive tariffs had an estimated trade value of about $119 million in 2019. The UK, Italy, Spain, Turkey and Austria are the others for which the US announced and suspended the tariffs simultaneously.

“The US is focused on finding a multilateral solution to a range of key issues related to international taxation, including our concerns with digital services taxes,” USTR Katherine Tai said, adding that Washington remained committed to reaching a consensus on international tax issues through the Organisation for Economic Co-operation and Development (OECD) and G20 processes.

The additional tariff of 25% was announced on 40 Indian products including shrimps, basmati rice, gold and silver items, bamboo products, wood furniture, cigarette paper, cultured pearls, precious or semi-precious stones and token-operated games for arcades, in retaliation to the equalisation levy (EL) that New Delhi imposes on non-resident ecommerce operators.

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This levy of 2% on revenue exceeding Rs 2 crore applies to ecommerce companies that do not have a permanent establishment here. This is in addition to a 6% levy on payments for digital advertisement services.

The USTR said the levy was unreasonable or discriminatory, and burdened or restricted US commerce, and was actionable under Section 301 of the Trade Act of 1974.

“The USTR made an announcement on its ongoing Section 301 investigation into DSTs of countries including India on June 2. The postponement of tariffs is similar to the DST investigation into France, where USTR indefinitely postponed tariffs after the first six-month delay to pursue negotiations at the OECD,” said a government official.

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Experts said India could raise a dispute at the World Trade Organization if the tariffs were implemented and draw up its own list of retaliatory actions such as banning American audio-video streaming services, social media platforms and credit cards here, but cautioned against withdrawing the equalisation levy.

“India does not have any commitments in audio-visual services and credit card services at the WTO. So, we have the option of blocking and banning streaming service companies, social media and messaging platforms and American credit cards. India will be well within its rights to take any such action,” said an expert on WTO issues, explaining that the European Union had challenged the Section 301 law in 1988, arguing that certain sections violated US obligations in the WTO.

The experts said this might be a signal of some solution in future. “Its current announcement of suspension of punitive tariffs is a positive signal to demonstrate that it is willing to negotiate an amicable solution to conflicting tax systems borne out of each country’s desire to protect its tax base in an era of digital disruption and globally mobile capital,” said Sudhir Kapadia, national tax leader, EY.

“The US has put on hold the tariffs since negotiations are currently going on and it wants to give time for these to fructify. The tariffs can still come back. This is a good development and since now the US is playing ball, there are good chances that a consensus at a global level may be reached,” said Amit Maheswari, tax partner at AKM Global, a tax and consulting firm.

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