DIGITAL TAX ON E-COMMERCE SUPPLIES

• Recently, India and the United States have agreed for a transitional approach on equalisation levy or digital tax on e-commerce supplies beginning from 1st April, 2022.
• Earlier in January 2021 , the Office of the United States Trade Representative (USTR) had said that the Digital services taxes adopted by India, Italy and Turkey discriminate against US companies.

Important points:

• On 8th October, 2021, 136 countries, including India, agreed to enforce a minimum corporate tax rate (Global tax Deal) of 15%, as well as an equitable system of taxing profits of big companies in markets where they are earned.
• The deal requires countries to remove all digital services tax and other similar unilateral measures.
• After that, the US, Austria, France, Italy, Spain and the United Kingdom reached an agreement on a transitional approach to existing unilateral measures while implementing Pillar one
• It is tailored to address the low effective rates of tax shelled out by some of the world’s biggest corporations, including Big Tech majors such as Apple, Alphabet and Facebook.
• The global minimum tax rate would apply to overseas profits of multinational firms with USD 868 million in sales globally.
• Pillar 1 (Minimum tax and subject to tax rules): Governments could still set whatever local corporate tax rate they want, but if companies pay lower rates in a particular country, their home governments could “top up” their taxes to the 15% minimum, eliminating the advantage of shifting profits.
• Pillar 2 (Reallocation of additional share of profit to the market jurisdictions): Allows countries where revenues are earned to tax 25% of the largest multinationals’ so-called excess profit – defined as profit in excess of 10% of revenue.

Significance

• It is beneficial to India as it can carry on with the present 2% levy with certainty until Pillar One takes into effect, along with a commitment from the US side to terminate the proposed trade actions and not to impose further actions as well.
• This would help prevent the tax loss arising due to online transactions as India has to roll back Equalisation Levy (EL) 2.0 any way after Pillar 1.
• It is to be kept in mind that Pillar 1 only applies to companies with a global turnover above 20 billion euros, which is precisely top 100 companies.

SOURCE: THE HINDU,THE ECONOMIC TIMES,MINT