USTR proposes retaliatory action on India’s Digital Services Tax

Tax

Virtual hearings on May 3, 10 on proposed action after Section 301 investigation.

In retaliation to India’s 2% digital services tax on foreign technology majors, the United States has proposed additional tariffs on Indian imports to mop up around $55 million to offset the Indian levy.

The United States Trade Representative (USTR), the agency responsible for developing and promoting American trade policy, has proposed a tariff of up to 25 per cent ad valorem on aggregate level of trade.

The Indian imports covered include basmati rice, sea food, jewelry, bamboo, semi-precious stones and pearls.

The USTR is holding virtual multi-jurisdictional and public hearings on proposed action after an investigation of India’s Digital Services Tax under Section 301 of the US Trade Act, 1974, on May 3 and May 10. Those interested may file a request by April 21.

India says its DST is aimed at ensuring that non-resident, digital service providers pay their fair share of tax on revenues generated in the Indian digital market.

India has also clarified that the DST itself in no way discriminates based on the size of operations or nationality. It may appear to predominantly affect US companies because the market for digital services is dominated by US-based firms, it says.

India’s 2% DST is levied on revenues generated from digital services offered in India, including digital platform services, digital content sales, data-related services software-as-a-service, and several other categories of digital services.

READ: Tastes like chicken: how a trade war affected US economy in the past (July 13, 2018)

On June 2, 2020, the USTR initiated an investigation of India’s DST on three counts, discrimination against US companies; retroactivity; and possibly unreasonable tax policy.

Interested persons filed over 380 written submissions in response. USTR said consultations were also held with the Indian government on Nov. 5, 2020.

Based on information obtained during the investigation, USTR prepared a comprehensive report concluding that India’s DST is unreasonable and discriminatory and burdens or restricts US commerce.

On January 6, 2021, based on the information obtained during the investigation and the advice of the Section 301 Committee, the USTR determined that India’s DST is actionable.

READ: No thaw in US-India tariff war (June 19, 2020)

USTR proposes to impose additional tariffs of up to 25 percent ad valorem on an aggregate level of trade that would collect duties on goods of India in the range of the amount of DST that India is expected to collect from US companies, it said.

Initial estimates indicate that the value of the DST payable by US-based company groups to India will be up to approximately $55 million per year, USTR said.

USTR further proposes that the goods of India subject to additional tariffs would be drawn from the preliminary list of products in the Annex to this notice, as specified by the listed eight-digit tariff subheadings.

The 40 tariff sub-heads proposed for tariffs include Rattan furniture and parts, precious stone articles, gold rope necklaces and neck chains, cultured pearls, yarn, cigarette paper, and corks and stoppers.

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