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DAILY NEWS ANALYSIS

  • 13 February, 2021

  • 4 Min Read

Digital Services Tax

Digital Services Tax

Why in news?

United States Trade Representative (USTR) reported that India’s DST is discriminatory & inconsistent with international tax principles.

What is Digital service tax (DST)?

  • Digital companies are not adequately taxed because they don’t have a physical location in the markets where they operate.
  • DST aims to ensure that non-resident, digital service providers pay their fair share of tax on revenues generated in the Indian digital market.

How does India’s DST evolve?

  • In 2016, Akhilesh Ranjan Committee suggested to create a level-playing field between online businesses and brick-and-mortar businesses.
  • Since digital businesses don’t have a physical presence but enjoy a sustainable economic presence they need to be taxed.
  • In 2016, India became the first country to implement the equalisation levy, on advertising services at 6%.
  • In 2018, India introduced the term significant economic presence in Income Tax Act.
  • According to this, if a company had users in India, it sort of defined its economic connection with India and therefore gives India the right to tax.
  • In 2020, the new equalisation levy expanded its scope even to e-commerce.

Source: TH


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