Government officials told ET that any roll back will happen only then. The budget, however, may outline final contours of the agreement between India and the US to phase out the 2% levy on e-commerce.
While announcing the agreement on October 21, 2021, the finance ministry had said the final terms of the deal would be finalised by February 1, 2022.
India will provide credit to US companies for any excess taxes accrued in the interim period (between April 1, 2022 and March 2024) against tax collected under the new regime.
The global tax deal, agreed upon by 136 countries, gives rights to countries, including India, to tax digital players including Microsoft, Google, Facebook and Netflix, besides setting a ‘global minimum corporation tax’ of 15%. It is to be implemented from 2023.
Under the Pillar One of the global deal, all signing countries are required to withdraw their existing digital services taxes and other relevant similar measures with respect to all companies and also commit not to introduce any new unilateral measures in the interim period.
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“There are timelines set for adoption of the global tax deal, which is not happening in the current year,” said an official, who did not wish to be identified.
Amendments to this effect will be brought in once there is a clear indication of the contours, said the official.
“This transitional approach with US is more about assuring US firms that there will be no change in the current tax regime till it is replaced by the new Pillar One system, and they will even get credit for the levy paid during the interim period,” said Akhilesh Ranjan, former member, Central Board of Direct Taxes (CBDT).
The final terms of the India-US agreement will lay down a mechanism for taxpayers (US-based digital firms) to claim credit on the tax paid during the interim period. Presently, there are two rates for digital tax – 6% for online advertising (introduced in 2016) and 2% for e-commerce business (introduced in 2020). The agreement between India and the US referred to e-commerce business, for which the rate of levy is 2%.
“The final terms of the deal would certainly relieve several Indian companies from tariffs which could be levied as a result of US Trade Representative proceedings,” said Radhakishan Rawal, tax partner, Deloitte.
