On a day when an interim trade deal between India and Australia came into force, commerce and industry minister Piyush Goyal exuded confidence that at least two free trade agreements (FTAs) could be clinched in 2023.
India is engaged in FTA talks with a number of key economies, including the UK, Canada, the EU and the Gulf Co-operation Council (GCC). Moreover, it will likely start negotiations for a broader FTA with Australia in January. While Goyal didn’t name any potential FTA partner, official sources expected India to clinch such pacts with at least the UK and Canada in 2023.
Given that negotiations with so many countries are going on simultaneously, the commerce ministry does not have the bandwidth to accede to requests for FTA talks by smaller trading partners like New Zealand (annual trade with New Zealand stands at just $350 million), Goyal indicated.
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Speaking at an event in Mumbai on Thursday to mark the operationalisation of the India-Australia Economic Cooperation and Trade Agreement (ECTA), Goyal said it would extend Indian industry duty-free access to a broad range of raw materials from Australia. This will improve domestic industry’s competitiveness in manufacturing as well as exports, he added. The ECTA was signed on April 2.
He handed over certificates of origin for the first batch of consignments of Indian goods that would get preferential access under the ECTA. The FTA will benefit a large number of sectors, including textiles, gems and jewellery and also information technology, he added.
The Economic Cooperation and Trade Agreement (ECTA), signed on April 2, will almost double bilateral trade to $45 billion in five years, according to a CII estimate. A study by the Global Trade Research Initiative (GTRI) pegged the potential bilateral trade (both merchandise and services) at $70 billion in five years.
Bilateral goods trade worth $23 billion will become duty-free from day one, according to the GTRI. This represented 93% of the $25-billion merchandise trade between India and Australia last fiscal.
As for India, 96.4% of its goods exports will get duty-free access to Australia from the Day 1. Most of these products currently taxed at 5% or less in Australia.
Tax relief for IT firms from Apr 1
The implementation of the ECTA will also lead to the abolition of double taxation on IT services provided by Indian firms in Australia from April 1, 2023. Canberra had agreed to tweak its domestic law to stop taxing the offshore income of Indian firms providing technical support there, a pledge that was part of the India Australia ECTA.
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Using the provisions of the 1991 India-Australia double taxation avoidance agreement (DTAA), Australia 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. This is contrary to the very spirit of such a DTAA and the anomaly is expected to have cost Indian IT companies about $1.3 billion since 2012, according to an industry estimate.
Goyal said with the elimination of the double taxation, the IT and ITeS industry will save millions of dollars and possible over $1 billion in 5-7 years. It will give India “the competitive edge” and also create a lot many jobs, he added.