Sources told Reuters that US tech firms including Google and Facebook urged the Indian government to suspend its new digital tax claiming that they have been struggling with their businesses due to the impact of the coronavirus outbreak. The new digital tax is expected to turn sour in the US-India relationship, which was recently forged to bring massive cooperation of trade and financial business between the two countries.
Indian Digital Tax
When the 2020-21 budget was first presented in the Indian parliament on February 1, 2020, the provision of the new levy was not mentioned. In last week, the Indian Government has hurriedly passed the new digital tax in amendments which left the tech companies only limited days to prepare for the regime change.
The Indian government announced last week that all foreign billings for digital services in the country would be slapped a 2% tax with effective from April 1, 2020. Foreign billings are where companies take payment abroad for a service provided to customers in India. The government officials described that the new tax would also apply to e-commerce retailers such as Amazon.com, as well as companies dealing with advertising revenue which “targets a customer” in India.
Several executives from major tech companies held a conference call meeting organized by the US-India business lobby groups last week and decided to seek a deferment of the new tax at least six months. One source mentioned that Google would be facing trouble since it had to identify countries where its advertising arrangements have targeted Indian users.
Terming the new tax as a “big, big headache” for the tech companies, an executive who works for a global technology company, stated, “Everyone is grappling. In the current downturn, the focus is on protecting the business hit due to coronavirus.”
Possibility of US-India Tension
India’s finance ministry refused to share a comment on the issues of the new tax when Reuters approached. Meanwhile, the new tax regime is likely to cause a political tension between Washington and New Delhi as the new levy is basically targeting the US-based companies.
A partner at law firm Khaitan & Co., Indruj Rai explained that the government’s move targeted those foreign companies which have a large local client base but were receiving the transaction through their offshore units. Rai added, “The timing of the introduction of the levy appears to be an attempt to increase revenue collections during the pandemic.”
India and the US have agreed on various trade deals but they still have unsorted conflicts over a wide range of tariffs. The new move of India would cause alarm to the US government; however, analysts claimed that Washington would be not immediately reacting to the Indian new tax since it has prioritized its policy over the virus pandemic.
I’m Roshan, a journalist, blogger and music lover. I like covering global news related to finance, business, and technology. Focusing on the collection of true and reliable information, I rely on working by conducting interviews with business leaders and talking to the inside sources of companies.
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