India and Australia on Saturday signed an Economic Cooperation and Trade Agreement (ECTA) that seeks to nearly double bilateral trade in the next five years to $45-$50 billion from about $27 billion at present. It also eases norms for collaboration and talent sharing between the two nations.
Under the provisions of the Double Taxation Avoidance Agreement, Australia had been charging tax under the head – ‘royalty’ – from Indian IT companies for offshore work done in India, though the same income was taxed in India as well. This had led to losses of almost $1 billion for the $220 billion IT industry over the last 10 years.
IT industry captains applauded the move to end double taxation.
“Thank you so much to the Govt of India and to Nasscom for resolving the critical and long-standing Australia tax issue. The perseverance paid off!” Wipro chairman Rishad Premji said in a Twitter post on Sunday.
Thank you so much to the Govt of India and to Nasscom for resolving the critical and long standing Australia tax is… https://t.co/dPXyYZQWvz
— Rishad Premji (@RishadPremji) 1648970593000
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Nasscom president Debjani Ghosh tweeted, “High skilled talent mobility is the most critical success imperative of a thriving global digital economy. Super stoked and proud to see India and Australia lead the way!”
High skilled talent mobility is THE most critical success imperative of a thriving global digital economy. Super s… https://t.co/DYQGibn9Dk
— debjani ghosh (@debjani_ghosh_) 1648988872000
According to estimates by the IT industry body, the Indian IT sector’s total annual revenues from the Australian market are about $2-$3 billion. About 50% of this business is estimated to be served through offshoring to India. The tax impact on the offshore services income levied at 15% equals to about $225 million annually (around Rs 1,507 crore).
Starting from FY2011-12 till date, the cumulative impact has been estimated at over $1 billion for India.
“In addition, the recognition of talent mobility with 4-year temporary work permits, spouses and dependent visas will enable enterprises in both countries to leverage the digital talent skills, build digital capabilities at scale and collaborate through innovative startups,” Nasscom said.
The industry association said it was confident that Australia would amend its domestic laws soon to reflect the agreement.
“It is a great relief for Indian IT firms like Tech Mahindra, Wipro, Infosys who are operating in Australia. Hereafter, unlike last time, even the tax department cannot appeal in Federal Courts as the complete domestic laws are getting amended. So, the department will lose its ground to tax Indian IT firms,” said Prabhakar KS, founder and chief executive of Shree Tax Chambers.
Tech Mahindra had lost its appeal against the tax levy in an Australian court in 2018.
Australia has agreed to amend its domestic taxation law to stop taxation of offshore income of Indian firms providing technical services to the country, Piyush Goyal, minister of commerce and industry, had said.
