American IT body says digital services tax aims only non-Indian e-commerce firms with widest ramifications

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Updated: Jul 18, 2020 11:17 AM

The global tech trade association said that the tax imposed by India has the widest ramifications compared to the nine other countries.

ITI claimed that India’s tax is “perhaps the broadest” of the DSTs as it applies to sale of all goods or services by digital businesses to persons using an Indian IP address.

Washington-based Information Technology Industry Council (ITI), which represents tech firms like Google, Microsoft, Amazon, Facebook, Apple and SoftBank, has claimed that the digital services tax (DST) imposed by India targets only “non-Indian e-commerce companies”.

In a detailed legal analysis on DSTs submitted to the United States Trade Representative (USTR), the global tech trade association said that the tax imposed by India has the widest ramifications compared to the nine other countries as it applies to sale of all goods or services by digital businesses to persons using an Indian IP address.

“Unlike other DSTs, India’s new tax applies with respect to online sale of both goods and services and it solely targets non-Indian e-commerce companies,” ITI’s senior director (policy, trade & tax), Sam Rizzo said in the legal analysis to USTR Robert Lighthizer.

The issue relates to US initiating investigation against India and nine other countries for imposing or considering DSTs with potential to hurt American firms. India widened the scope of equalisation levy to include e-commerce players and intermediaries. It’s a sort of digital tax on non-resident e-commerce operators at 2% on the revenue they generate in India from e-commerce supply or services. This levy has to be deposited by the e-commerce operator and not by the buyer of the goods or service.

Rizzo explained that the Indian tax discriminates against US firms in two respects. “First, the measures only apply to foreign digital companies that supply goods or services to domestic purchasers (whether individuals or businesses), not to domestic digital companies. For example, Indian digital companies that are outside the scope of the taxes that compete with ITI member companies that are within the scope include Snapdeal, Pepperfry and Quikr,” he added.

Second, he said the levy only applies to sales made through digital firms and thus excludes Indian brick-and-mortar establishments that supply the same goods and services as foreign digital businesses. “There is an endless variety of Indian physical marketplaces that compete with ITI member companies. Indian companies would be excluded from the tax, while ITI member companies would be within the tax’s scope. There is no legitimate justification for this differential treatment,” Rizzo pointed out.

ITI claimed that India’s tax is “perhaps the broadest” of the DSTs as it applies to sale of all goods or services by digital businesses to persons using an Indian IP address. It also applies to sales to Indian residents, potentially irrespective of their location.

“Further, Indian government set the revenue threshold significantly lower than the other DSTs (presumably because domestic companies were already carved out on the face of the measure), requiring revenue of $20 million (Rs 200 lakh) (approximately $267,000), meaning that an unusually large swath of foreign companies will fall within the scope,” it claimed.

This will result in substantial tax, compliance, and audit costs for many US companies, including smaller businesses and low-margin businesses, the trade body pointed out.

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