A Multilateral Solution

Context: The recent controversial decision regarding levy of cross border digital taxation should be handled multilaterally with the counterparts having similar concerns about digital services taxes.

Arguments favoring levy of Equalisation Tax:

• Non- Discriminatory in nature: as it is levied on all non-resident e-commerce companies.
• India is not the only country seeking fair taxation:
• • • •  Eight large economies in the European Union, as well as Britain, Mexico, and Tunisia, have introduced digital services taxes of some kind.
      • Australia, have extended goods and services tax to imported digital services or introduced taxes targeted at multinationals.

• OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting, or BEPS argues that some form of digital tax can work best as an interim solution till international tax treaties are concluded.

Arguments against levy of Equalisation Tax:

• Destroys the economic relations with the US: which is detrimental to India’s recovery amidst pandemic and pre-existing investment and demand slowdown.

• • • The US has launched a “Super 301” enquiry — an investigation under Section 301 of the 1974 US Trade Act — into digital services taxes in its trading partners
• Levy favours domestic competitors over non-resident companies.
• Inconsistent facets: 

• • • For E.g. if particular goods from a foreign country are not subject to tax in India, then why should a digital transaction for these goods be subject to the new tax? 
    • The rules also cover all transactions with an “Indian” IP address, even if between two non-residents.

Way Forward: Consensus based Solution: India’s commitment to multilateralism over unilateralism means that the government must seek out its counterparts with similar concerns about digital services taxes.