Source: BS
Context: US President Donald Trump has threatened additional tariffs on countries imposing Digital Services Taxes (DSTs) on American tech giants, calling them discriminatory.
About Digital Services Taxes (DSTs):
What it is?
- A gross-revenue tax (not corporate income tax) levied on specific digital services like online advertising, digital marketplaces, intermediation, and sale of user data.
- Applied on the revenues generated from users in the taxing country, irrespective of where the company is headquartered.
Aim:
- To ensure fair taxation of global digital companies that earn significant revenue from a country’s users without having a physical presence there.
- To address tax base erosion and ensure that value created by user participation is taxed locally.
Features:
- Destination-based → tax liability is tied to the user’s location, not the firm’s HQ.
- Targets large companies exceeding global and domestic revenue thresholds (e.g., €750 million worldwide + local threshold).
- Generally imposed at 2–7.5% rates on in-scope services.
- Criticised as discriminatory, since most large affected platforms (Google, Amazon, Meta, Apple) are US-based.
India and Digital Services Tax:
- Equalisation Levy (2016): 6% tax on online advertising services provided by non-resident companies.
- Expanded (2020): 2% levy on e-commerce supplies/services by foreign digital firms.
- Withdrawal:
- 2% e-commerce levy removed in August 2024.
- 6% online ad levy withdrawn from April 2025 (via Finance Act, 2025).
- India aligned its policy with the OECD global tax framework, moving away from unilateral DSTs.
