Australia will likely ratify before November 18 an interim trade deal with India, which was signed on April 2 but is yet to come into force due to a delay in endorsement by its Parliament following the election of a new labour govenrment there, sources told FE.
The unusual delay in the ratification of the Economic Co-operation and Trade Agreement (ECTA) by Australia has rattled the IT industry, apart from adding to uncertainties about bilateral trade prospects. The deal is aimed at raising bilateral trade to $50 billion in five years from $27.5 billion in 2021.
The IT industry wants Australia to stop taxing the offshore income of Indian firms providing technical support there at the earliest. Canberra is to tweak its domestic law to stop such a taxation, a pledge that is part of the India Australia ECTA. Moreover, benefits of the trade deal would accrue only after it’s ratified.
Some of the senior Indian industry executives now want the negotiation for a broader free trade agreement (FTA) with Australia, which was agreed upon earlier, to start only when the interim deal comes into force.
The ECTA promises preferential access to all Indian goods in five years (from 96.4% immediately after the pact comes into effect) and 85% of Australian products (from 70% to start with) to each other’s market. Indian yoga instructors, chefs, students and STEM (Science, Technology, Engineering and Mathematics) graduates will have easier access to Australia while premium wine from that country will make greater inroads into Indian supermarkets once the deal comes into force.
Indian labour-intensive sectors — including gems & jewellery, textiles & garments, leather, footwear, furniture and food & farm products — and engineering products, medical devices and automobiles will benefit from the pact. Similarly, Australia will have preferential access to the Indian market in raw materials such as coal, aluminium and premium wines.
Indian IT industry executives said once the deal comes into effect, it will correct a costly anomaly in the 1991 double taxation avoidance treaty (DTAA) between the two countries and enable Indian IT and ITeS players to substantially scale up their operations in Australia. The anomaly is expected to have cost Indian IT companies about $1.3 billion since 2012, according to an industry estimate.
Using the provisions of the India-Australia DTAA, Canberra has been taxing income generated from offshore IT services rendered from India as royalty, even when the same income is being taxed in India as well.