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Finance Minister Nirmala Sitharaman on Monday called for consensus solution on taxation of digital economy.
Taxation of digital economy, known as equalisation levy in India, has been a contentious issue globally. In fact, the US Trade Representative’s office has announced that it will start Section 301 investigations against India and nine others, such as Australia, Brazil, Italy, the UK and Czech Republic, for imposing or considering digital services taxes that may affect American companies like Google, Amazon, Apple and Facebook. The Section 301, adopted by the US in 1974, allows the US President to unilaterally impose tariffs or other trade restrictions on foreign countries.
Attending the First BRICS Finance Ministers and Central Bank Governors (FMCBG), Sitharaman talked about ongoing international efforts to find a solution to the issue of taxation of digital economy. “A consensus solution will play an important role in ensuring fairness, equity and sustainability of tax systems,” a statement issued by Finance Ministry quoting Sitharaman said.
It may be noted that taking a cue from the G20 / OECD Base Erosion and Profit Shifting (BEPS) Action 1 dealing with digital economy, India introduced an Equalisation Levy (EL) in 2016 at the rate of 6 per cent on non-resident companies engaged in online advertisement and related activities. The scope of the said provision was expanded to include EL of 2 per cent on consideration received or receivable by an ‘ecommerce operator’ from ‘e-commerce supply or services’, and is effective from April 1, 2020.
Role of BRICS countries
The Finance Minister observed that the G20, of which all BRICS countries are members, has delivered some very significant initiatives this year including the G20 Action Plan in response to Covid-19 which has provided broad guidance to navigate a collective global response to the crisis. Additionally, the G20 Debt Service Suspension Initiative ensured immediate support to address the liquidity needs of low-income countries. She further said BRICS members have played an important role in ensuring that concerns of emerging economies are appropriately reflected in these initiatives.
The BRICS Finance Ministers and Central Bank Governors also discussed expansion of the membership of the New Development Bank (NDB). The Finance Minister supported the expansion of the membership of NDB and emphasised the importance of regional balance. Sitharaman also shared her perspective on Russia’s initiative to develop an integrated Digital Platform (Data Room).
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