The US Trade Representative’s (USTR) section 301 investigation comes barely two months after India imposed a 2% equalisation levy on e-commerce companies, four years after it had introduced the tax on the revenues generated on business-to-business digital advertisements and allied services. Apart from India, the European Union, the UK, Austria, Brazil, the Czech Republic, Indonesia, Italy, Spain, and Turkey are included.
Indian officials, however, said that the action is not targeted at India as it is meant to deal with the issue of digital taxation. “Moreover, this is a consultative process that stems from initial concerns with India’s equalisation levy. USTR has stated that it will solicit comments from the US public regarding the potential impact of policies such as India’s equalisation levy. Hence, USTR is still collecting facts regarding India’s policy and it may emerge that India’s equalisation levy does not qualify as an unfair trade practice,” an official said.
In the case of France, where the probe found the policy to be unfair and a burden on US commerce, no tariffs have been imposed as the two sides are negotiating an outcome.
“This is a larger trade issue, there are many of similar nature that companies will try to press and the US will try and support. By larger trade issues, it means there are issues like data localisation, where they (US firms) have pushed back, and privacy laws,” said Rahul Matthan, partner (head of technology practice) at law firm Trilegal.
The extension of the levy to e-commerce players had prompted those such as Netflix to seek a clarification from the government, while lobby groups such as the Internet and Mobile Association of India pleaded with the government to roll it back on the ground that it would impose an “additional burden of new regulatory and compliance requirements”, amid the virus outbreak.