After a settlement of dispute over Digital Services Tax, the US drops punitive tax on Indian exports

The decision of dropping additional duties was made after a settlement of dispute over the DST imposed by New Delhi on some giant American companies

The decision of dropping additional duties was made after a settlement of dispute over the DST imposed by New Delhi on some giant American companies
The decision of dropping additional duties was made after a settlement of dispute over the DST imposed by New Delhi on some giant American companies

Digital Services Tax deal: US drops punitive tax on Indian exports

According to the US Trade Representative’s (USTR) Office, the United States has cancelled the proposed 25 percent additional duties on more than 25 Indian exports ranging from shrimps and basmati rice to gold jewellery and furniture. This decision of dropping the additional duties was made after a settlement of the dispute over the Digital Services Tax (DST) imposed by New Delhi on some giant American companies.

The settlement was based on the Organisation for Economic Cooperation agreement on international taxation which has at its core a global minimum corporate tax of 15 percent and makes way for countries to tax multinational enterprises (MNEs), especially tech giants like Google, Facebook, and Amazon, on their earnings there.

This would mutually benefit the US and other countries because while recognizing the right of all countries to tax the multinationals, it also sets the minimum tax of 15 percent to disincentive companies from locating in countries with little or no taxes on them to evade paying taxes in what is really their home countries.

The USTR Office said citing the Treasury Department announcement said that the punitive tariffs on some Indian exports which could have soon been brought into force were temporarily suspended for 180 days, now stands withdrawn.

The US Treasury Department said on Wednesday that an agreement to settle the dispute was reached with India on the basis of the international agreement on taxing multinationals that were reached in July and finalized last month by 137 countries, paving the way for the USTR to drop the additional import duties.

The announcement was made soon after USTR Katherine Tai visited India this week to strengthen the India-US economic ties.

“Overall political agreement is yet further demonstration of our commitment to working together to reach consensus, and to deliver far-reaching multilateral reforms that help support our national economies and public finances,” the department said.

The additional import duties were to have been in retaliation for India imposing a two percent DST starting in April last year on earnings in the country by foreign technology and e-commerce companies like Amazon, Facebook, and Google.

Former Republican President Donald Trump’s administration in its last days in January declared the DST discriminatory making it liable for counteraction and his Democratic Party successor Joe Biden’s officials continued the opposition culminating in the imposing of the punitive tariffs.

The US held that the DST was discriminatory because it did not apply to Indian technology and e-commerce companies.

The US also threatened similar retaliatory tariffs against Austria, Britain, France, Italy, Spain, and Turkey for the DST they imposed on US companies. These countries have since reached agreements with the US for dropping the DST and Washington in turn cancelling the additional tariffs on their exports.

The USTR said that the DST on e-commerce services of US companies that accrue in India starting on April 1 next year will be creditable to future taxes under the OECD agreement starting on March 31, 2024, or when the agreement is implemented, whichever is earlier.

The Treasury Department called the deal between India and the US “a pragmatic solution” and said the two countries are “committed to working together through constructive dialogue on this matter.”

Meanwhile, on another trade issue, the US has said that it could consider restoring the tariff concessions to India under the General Scheme of Preferences (GSP) that was withdrawn by Trump in 2019 as he launched initiatives to cut US trade deficits.

A joint statement issued on Wednesday after the Twelfth Ministerial meeting of the Trade Policy Forum in New Delhi led by Tai and Commerce Minister Piyush Goyal said, “India highlighted its interest in the restoration of its beneficiary status under the US Generalised System of Preferences program; the United States noted that this could be considered, as warranted, in relation to the eligibility criteria determined by the U.S. Congress.”

The GSP programme which gave Indian exports trade concessions worth $5.6 billion was limited to certain categories like apparel and footwear with the aim of alleviating poverty by promoting exports by poor craftspeople and artisans in those sectors.

[With Inputs from IANS]

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