India will ask Australia to amend its domestic law swiftly for the resolution of the tax issue being faced by Indian IT companies under the double-taxation avoidance agreement (DTAA), when trade ministers of both nations meet here next month, sources told FE.
New Australian trade minister Don Farrell will visit India in September for the joint ministerial commission meeting with commerce and industry minister Piyush Goyal, an official source said.
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India will likely ask Australia to amend its laws, in accordance with a formal pact reached between the two sides in April, and stop taxing the offshore income of Indian firms providing technical support there.
Both sides have already acknowledged the need for an early ratification of the interim trade deal, or the India Australia Economic Cooperation and Trade Agreement (ECTA), which was signed in April.
Once implemented, Canberra’s move to tweak the law will correct a costly anomaly in the 1991 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.
Since 2000, key IT firms such as Infosys, TCS, Wipro, Tech Mahindra Satyam and HCL have stepped up operations in Australia, but this taxation continues to be an issue for them. Once it is resolved, the firms can significantly ramp up business there.
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The Indian IT services industry grew 2.7% on year in FY21 to $99 billion, according to Nasscom. The broader industry, including e-commerce, business process management and global back offices, grew 2.3% to $194 billion in FY21. According to RBI data, Australia and New Zealand together accounted for 3.1%, or $4.2 billion, of India’s software services exports in FY21.