India Will Forge Ahead on Digital Tax—Alone if Necessary: Tax Chief

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By Siri Bulusu

India will continue to take its own steps to tax the digital economy, building on its equalization levy on digital advertising, unless international consensus is reached, an Indian tax official warned.

The European Union is debating the right way to ensure the digital economy pays its fair share of tax, and introduced a temporary turnover tax on large internet companies to serve as an interim measure. Officials across the bloc have warned against countries making moves on their own, and have pointed to India and Italy as examples of those that have imposed revenue-based taxes on digital companies in the past two years.

“Interim measures may have to be undertaken until consensus is reached,” Akhikesh Ranjan, India’s chief commissioner of income tax, said April 27.

India’s measure places a 6 percent withholding tax when Indian merchants pay to advertise on foreign websites such as Alphabet Inc.'s Google or Facebook Inc. India may expand its “Google tax” to include streaming and marketing services like those offered by Facebook, Amazon.com Inc., and Netflix, Inc., Ranjan said.

The levy was meant to “send a policy statement to the world,” Ranjan said in an April 27 panel discussion at the International Fiscal Association’s tax conference in New Delhi.

“There are still a large number of countries which think the current taxation rules regarding digital transactions are sufficient and that there is nothing special about the digital economy,” he said.

10 Trillion Rupees

India introduced the levy in 2016, which panelists described as a knee-jerk reaction to the changing digital economy. India was the first country to implement such a tax, which was in line with base erosion and profit-shifting prevention efforts from the Organization for Economic Cooperation and Development.

From its implementation in June 2016 through March 2017, India collected 3.4 billion rupees ($50.9 million) in revenue from the equalization levy, according to the OECD.

Revenue collections from the tax are “nothing substantial” compared to the 10 trillion rupees ($149.8 billion) being collected globally, Ranjan said.

Need ‘Common Understanding’

“A lot of countries are taking sporadic measures and India is coming out with measures that sort of attack the problem, but I would say that there should be global consensus—we need to have a common understanding on how to tackle the market,” Gary Gowrea, managing director of Mauritius-based Cim Tax Services, said on the panel.

Shefali Goradia, tax partner at Deloitte India, said on the panel that her clients are “caught in the whirlpool” of not knowing which way the tax landscape is headed and are therefore struggling between facing the tax and trying to adapt their business models.

“When it was introduced, India knew it was trying to set the mindset that source countries will try to impose some kind of tax if the rest of the world doesn’t reach consensus,” she said.

To contact the reporter on this story: Siri Bulusu in New Delhi at correspondents@bloomberglaw.com

To contact the editor on this story: Penny Sukhraj at psukhraj@bloombergtax.com

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