Equalisation Levy response: US proposes retaliatory tariffs of up to 25% on select Indian goods

In its first retaliatory action under the Joe Biden administration, the US has proposed to impose retaliatory tariffs up to 25% on around 40 Indian products including shrimps, basmati rice, gold and silver items in response to the equalisation levy or digital services tax (DST) imposed by India on non-resident e-commerce operators.
The United States Trade Representative (USTR) on Thursday said this would collect duties on goods of India in the range of the amount of DST that India is expected to collect from US whose initial estimates are pegged at $55 million per year.

“In particular, USTR proposes to impose additional tariffs of up to 25% ad valorem on an aggregate level of trade that would collect duties on goods of India in the range of the amount of DST that India is expected to collect from US companies,” it said in a report on Next Steps of 301 Digital Services Taxes Investigations.

It proposed similar actions for five other countries- Austria, Italy, Spain, Turkey, and the United Kingdom.

“Initial estimates indicate that the value of the DST payable by US- based company groups to India will be up to approximately $55 million per year,” USTR said in its report on India.

In January, USTR said that the DSTs adopted by Austria, India, Italy, Spain, Turkey, and the United Kingdom were subject to action under Section 301 because they discriminated against US digital companies, were inconsistent with principles of international taxation, and burdened American companies.

The 2% equalisation levy, or the so-called Google tax, came into effect on April 1, 2020. The USTR has identified 119 companies that are likely to be liable under the Digital Service Tax, out of which 86, or 72%, are American companies.

New Delhi had, in November last year, argued that the levy was one of the methods suggested by the 2015 OECD-G20 report of Base Erosion and Profit Shifting Project, aimed at tackling the taxation challenges arising from digitisation of the economy. The levy has a threshold of Rs 2 crore.

“The United States remains committed to reaching an international consensus through the OECD process on international tax issues. However, until such a consensus is reached, we will maintain our options under the Section 301 process, including, if necessary, the imposition of tariffs,” said USTR Katherine Tai on the retaliatory measures proposed.

Other items in the initial list of targeted products from India include bamboo products, wood furniture, cigarette paper, cultured pearls, precious or semi-precious stones, jewellery, corks, token operated games for arcade and brassieres.

The USTR said it has decided to convene virtual public hearings and accept rebuttal comments in relation to the potential action from affected parties in May 2021.