U.S Section 301 Probe against India
On June 2nd 2020, the US has initiated a probe against ten countries and India is one among those countries. This probe is against the digital taxes that are being levied by these countries on the services of US companies such as Linkedin, Netflix and others. The claim is that these taxes are unfair and inequitable and discriminatory, burden and restricts US commerce.The Story
India started Imposed a tax known as “Digital Tax” on companies that generate revenues by providing digital services. This tax, in general, applies only to large non-resident companies with an annual turnover of more than $267,000 and provides online digital services. Now The US official claim that this particular tax “DST” is unreasonable and inequitable.
India in march 2020 amended the finance act and expanded the ambit of tax for Non-Resident eCommerce operations involved in the supply of services, including the online sale of goods and provision of services, with the levy at the rate of 2 per cent.
When it comes to online companies that provide digital services to users at different parts of the world, they perform transactions online and will go paying very low taxes or sometimes with no tax. Even the international community has been working for the past few years to come out with a possible universal digital tax. The US is also a member of this discussion but on December 3 2019, the US withdrew from these discussions. After the withdrawal of America, various nations have independently introduced different digital taxes on these companies providing online digital services.
“President Trump is concerned that many of our trading partners are adopting tax schemes designed to unfairly target our companies,” said USTR Robert Lighthizer. “We are prepared to take all appropriate action to defend our businesses and workers against any such discrimination.”
Based on the imposition of this tax which in general targeting the US companies, section 301 probe is being announced on India including 9 other nations. This will probe the DST and find the implication of this taxes on US companies and check whether the imposition is impartial or is it discriminating.
Section 301 of the United States Trade Act empowers USTR to conduct an investigation on a trading partner’s policy ad its activities which may be deemed unfair unreasonable or discriminatory and might affect negatively on US companies. Later this year India had imposed a 2 per cent levy on payments made by suppliers to e-commerce portals by expanding the scope of “Equalisation Levy” in this year’s budget which is specifically called as “Digital Service Tax”.
Even many highlighted about the Imposition of this Probe against, This has to be noted that the probe is not specifically against India. This has consequently launched against 10 Nations and India is one of them. This is not a specific punitive action against India but is a general probe targeted at all nations at once. This will identify if any nation is practising unfair policies against US companies.
If the Probe is carried out on India and the provision of section 301 are satisfied, then the US government can initiate actions that it has currently doing against China. These include
- Denial of Duty-free benefits or any other benefits under any other trade agreements
- The imposition of Higher duties on Imports.
- Going into an agreement with other foreign nations to eliminate impugned action and provide the US with trade benefits.
But, there is also a discussion that if this probe is in compliance with World Trade Organization rules. In WTO rules, there is a specific provision “Dispute resolution mechanism”. According to this any nation which is a part of WTO can determine unilaterally the breach of any of the WTO guidelines and if there is a proved breach of guidelines, the nation can take action to correct and compensate the breached regulations.
So this Dispute regulations specifically allow nations to conduct the probe. Hence the US is within its rights to perform a probe and analyze the taxes to find if any discriminatory policies. And at the same time take the effective steps if the guidelines are proved to be breached.
But India is also within its rights to imposed the taxes as it did not specifically violate any regulation of the World trade organization. But the present probe will set a stage on the global community making the US as a one-hand player. This on outer look seems to be an action from America to be a global leader and final authority making WTO like multilateral organizations abundant.
NDA government at the Centre is trying from the past to get a trade deal signed with President Donald Trump. This present probe might affect the trade relations between the two countries and will impact the trade deal agreement New Delhi having on its desk for a long time.
Indian Officials, on the other hand, are preparing for the probe to defend its side. They have pointed out that there are several provisions in the US law which ensures consultation with the trading partners. The present probe will give us the chance to defend our taxation policy. They also claim that if the USTR probe recognises Indias Tax as Unfair and unreasonable, at that situation also India will have a fair chance to undergo discussion with the US and stop from imposing tariffs.
The imposition of tax on companies and services is considered to be a sovereign power of any nations. The concern comes only when India tries to discriminate countries of one foreign nation when compared to others. In the present form, DST will not specifically discriminate any foreign country. And also DST is taxed only on the transactions that are happening in India.
If at any chance US recognizes India defends as not explanatory and if believes that the tax is unfair and discriminating, then India has to face high tariffs from the US. Bilateral Discussions might undergo with the US to prevent from taking such actions. In general, India is placed in a comfortable position and can be effective in the discussion. Only the reports from the USTR probe will tell us what will happen. we will update you once we have an update.
Share this article..
Until Next time…..
Image Source: Link