India likely to hold bilateral talks with US over retaliatory tariffs

Govt assessing potential impact of US decision to raise levies on 40 items

The Centre is considering holding bilateral talks with the United States over its proposal to impose additional tariffs on 40 items exported from India as a retaliatory measure against the imposition of digital services tax (DST) on American technology giants.
 
A senior government official told Business Standard that the government is meeting stakeholders and studying the impact of the proposed tariffs. “We could also have a government-to-government talk on the matter. The tariffs are being proposed against six countries (Austria, India, Italy, Spain, Turkey, and the United Kingdom) and not just India,” the official said, adding that India will also closely observe the steps other countries take.
 
Last month, the US had proposed retaliatory tariffs up to 25 per cent ad valorem on an aggregate level of trade on a slew of Indian products, including shrimps, basmati rice, and gold, among others. It has invited comments on the proposal with a public hearing slated for May 10.
 
This development comes soon after leaders from both nations indicated that they will look at ways to expand trade ties. US Trade Representative Katherine Tai, who was confirmed for the post in March, had said that both countries were willing to cooperate on pending bilateral issues. This was echoed by Commerce and Industry Minister Piyush Goyal on March 26, when he said the two countries were “looking at expanding our trade ties through removal of non-trade barriers”.
 
Exporters came out in support of bilateral discussions, saying this is not the time to retaliate either through counter measures or by approaching the World Trade Organization (WTO).

 
Ajai Sahai, director-general (DG) and chief executive officer (CEO), Federation of Indian Export Organisations (FIEO), said it is best to resolve the issue one-on-one and make it clear to the US that DST is not discriminatory.
 
“The objective is not to target the US. We should have a multilateral consensus on this issue (DST)... It is better to have a global consensus on such taxes, so that they are applied universally. When a multilateral level decision is taken, countries don’t have any concern,” Sahai said.
 
Experts too backed bilateral discussion as the best possible path to finding a solution. “It is important to find a way out for arbitration, which the WTO agreement also allows. Right now, the dispute settlement body (at WTO) is anyway in a limbo,” said Pradeep S Mehta, secretary general, CUTS International, a global public policy think tank on trade, regulations and governance. Finance ministry officials, however, said that India will not budge and will defend its stand on the digital tax.
 
“There is no question of reversing the equalisation levy. Till the time there is a multilateral solution in place to tax digital companies, this is an interim measure. The fact is that these entities earn huge profits from India, but end up not paying taxes here. Equalisation levy will act as a trigger for all countries to derive a multilateral solution to taxing digital entities in a time-bound manner,” another government official said.
 
He added that the levy was not a unilateral measure and did not discriminate against American companies, but applies to all non-resident entities not paying taxes here on earnings made from India. “Rather, it is the US singling out a country, which is discriminatory. The department of commerce will engage with the USTR on this,” the official said.
 
India expanded the scope of the two per cent equalisation levy through clarifications in the Budget this year to include e-commerce supply or service when any activity, including acceptance of the offer for sale, placing the purchase order, acceptance of the purchase order, supply of goods or provision of services, part or full payment of consideration, takes place online.
 
Besides, the levy would apply on gross consideration and not just the commission earned, leading to an outcry from industry.
 
“Applying the levy on commission would have complicated the compliance for taxpayers. Hence, we have made it easier by imposing it on gross consideration and assumed a two per cent margin. We do not feel the need to issue any further clarification on this,” the government official said.