NEW DELHI: After months of deliberation, India and the US on Wednesday finally agreed on a compromise on the issue of equalisation levy or digital tax levied on the US-based e-commerce companies.
Under the new agreement, Indian government has agreed to refund the excess amount of tax that it collects through equalisation levy starting April 1, 2022 till March 31, 2024, (or when Pillar 1 of the new global tax regime takes effect, whichever is earlier), in comparison to the tax collected under Pillar 1 of the new global tax law in the first full year of its implementation.
The agreement is likely to end trade hostilities between the two countries after India unilaterally levied a 2% equalisation levy on foreign e-commerce companies. A statement by the finance ministry says, “India and the United States have agreed that the same terms that apply under the October 21 Joint Statement with respect to India’s charge of 2% equalisation levy on e-commerce supply of services and the United States’ trade action regarding the said Equalisation Levy.”
On October 21, 2021, the United States, Austria, France, Italy, Spain, and the United Kingdom reached an agreement on a transitional approach to existing Unilateral Measures while implementing Pillar 1. The final terms of the Agreement will be finalised by 1st February, 2022. “This is a commendable move of the Indian government. This agreement shall ensure that the corporates will get to pay fair taxes starting 2022, irrespective of the actual implementation of Pillar 1,” said Rakesh Nangia, Chairman, Nangia Andersen India.
Under the equalisation levy, the government charges 2% tax on revenue generated from a broad range of digital services offered in India, meant only for non-resident companies. Calling it discriminatory, the US proposed retaliatory tariffs of up to 25% on nearly 40 Indian products, in June. However following international tax negotiations, it suspended them. In October this year, 136 countries, including India agreed to implement two pillars of the global tax norms floated by the OECD countries.
The new agreement
Between India and the US, the interim period would commence from Apr 1, 2022 till implementation of Pillar One or Mar 31, 2024, whichever is earlier
The final terms of the Agreement shall be finalised by Feb 1, 2022
India is expected to collect Rs 3000 crore this year through Equalisation Levy
Bilateral trade between India and the US is expected to cross $100 billion this year