On June 2, 2020, the Trump administration had announced the “Section 301 investigation” under the US Trade Act, 1974 into digital services taxes (DST) that have been either adopted or were under consideration by its trading partners viz. Austria, Brazil, the Czech Republic, the European Union (EU), India, Indonesia, Italy, Spain, Turkey and the UK. Conducted by the United States Trade Representative (USTR), the objective of the probe was to determine whether levies on electronic commerce discriminate against US technological giants like Apple, Google, Amazon and so on. On January 6, 2021, the USTR released its findings on the probe and concluded that India’s 2% DST is discriminatory and restricts US commerce. It has raised three aspects which it alleges,...
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Category: Foreign investment & other inflows
A taxing problem
India’s sovereign taxation rights on capital gains cannot be held hostage to its bilateral investment treaties with other countries The Permanent Court of Arbitration (PCA) tribunal in The Hague has rejected the back tax demands of Indian tax authorities in both, the Cairn and Vodafone cases. These back taxes relate to capital gains made on transactions in 2006-2007. According to the PCA, the demands have been rejected on two counts. First, they violate India’s obligations under Bilateral Investment Treaties. Second, they are based on a retrospective amendment to a tax law passed in 2012. Both the arguments are untenable. As regards the first, tax is levied on the earnings of the companies from their operations in India. The Government has done nothing...
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Taxing capital gains – legal muddle
In a span of just three months, Modi – government has been confronted with two orders of an international arbitration tribunal overturning demand raised by the Income – Tax (IT) department on multinational companies in back taxes on income arising from capital gains by made by the latter on sale of their ownership in Indian companies – running into tens of thousand crore. First, on September 25, 2020, an international arbitration tribunal rejected Indian tax authorities’ demand for Rs 22,100 crore in back taxes (Rs 7,990 crore plus interest and penalty) relating to Vodafone Group Plc (the British telecom giant) US$ 11billion acquisition of 67% stake in the Hutchison Essar Ltd (HEL) – an Indian company running mobile phone business...
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Open doors for trade
The Govt should shed its current protectionism. Instead, it should go for an open trade policy by slashing import duties and eliminating non-tariff barriers While presenting the Union Budget for 2020-21, Finance Minister Nirmala Sitharaman had renewed the commitment of the Modi Government to “Make in India.” She saw this as the most crucial component of the strategy to make India a $5 trillion economy by 2024-25. To achieve this, she targetted doubling of exports from the current over $500 billion to $1 trillion (that includes an increase in farm exports from $40 billion to $100 billion). Faced with a whopping contraction in the Gross Domestic Product (GDP) by close to 25 per cent during the first quarter, a continuing...
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Crushing the competition
The regulator itself refuses to see that competition is being crushed, and even when it sees, its ruling is stayed by appellate authorities—thus, the increasing dominance of digital giants is inevitable. Amazon, some allege, uses the data of products on its e-commerce platform to decide what to sell under its own brand. Big Tech firms such as Google, Facebook, Amazon, and Apple have come under the radar of many governments, including that of the US, Australia, and France, for trying to steamroll competition by either buying competitors out or pushing other vendors to avoid working with them. Here is a glimpse of how they allegedly misuse use their dominant position. Google’s search engine is accused of stealing content with the goal...
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Snap the stranglehold
The only way to avoid delay and expedite the process of privatisation of Central PSUs is to unshackle them from bureaucratic red tape Finance Minister Nirmala Sitharaman has announced the broad contours of the Narendra Modi Government’s plans on privatisation of Central Public Sector Undertakings (CPSUs). A CPSU is defined as an undertaking in which the Union Government has shareholding of more than 50 per cent and by virtue of this, exercises majority ownership and control (there were 249 operating CPSUs as on March 31, 2019). Its privatisation means the shareholding of the Centre will be brought down to below 50 per cent. Before we look at the plan and how the Government goes about implementing it, it may be worthwhile to...
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For Atmanirbhar Bharat, go for open trade policy
The ‘Make in India’ reverberated all through the speech of Prime Minister Narendra Modi during his Independence Day address on August 15, 2020. Even before the Corona pandemic, in the Union Budget for 2020-21, Finance Minister, Nirmala Sitharaman proclaimed the commitment of Modi government to this laudable goal. This is the most crucial component of the strategy to make India a US$ 5 trillion economy by 2024-25. Faced with a whopping contraction in GDP (gross domestic product) by close to 25% during the first quarter, continuing slide during the second quarter and projected decline for the whole of current year by 5% – 6.5%, US$ 5 trillion target may have lost much of its sheen for now. Nonetheless, the government...
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Is India ready to tame global tech giants
Global technology companies such as Google, Facebook, Amazon, and Apple have been under the radar of governments in many countries for trying to steamroll competition by either buying their competitors (even if that meant spending mammoth sums) or pushing other vendors to avoid working with them. In June 2019, the US Congress and an antitrust panel of the House Judiciary Committee began a probe into the nature and working of the aforementioned big 4 who together have market capitalization of US$ 5 trillion. Based on collected documents and testimonies from workers of these firms and from rivals (it collected 1.3 million documents), prima facie the panel inferred that they had tried to push them out of the market using unfair...
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The case for a 15% tax rate for India Inc
A uniform tax rate of 15% (17.1% with add-ons) will, among other things, minimise tax litigation that arises largely due to multiple interpretations of a plethora of exemptions and deductions in tax legislation. Besides that, exemptions/incentives make the Indian law cumbersome to a point whereby it makes any prospective investor scary. A major factor affecting India’s ability to attract foreign investment for long has been the high rate of corporate tax. In 2018-19, the rate of tax on domestic companies was 30%. Including surcharge and cess, the total tax incidence is 34.9%. This made India an outlier as the corporate tax rate in other countries is much lower; for example, the US (21%), the OECD average (21.4%), China (25%), Vietnam...
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FDI through front door
The Govt must allow 100 per cent FDI in retail as this will level the playing field for all, eliminate discretion of bureaucrats whose writ is all-pervasive and help small traders On April 22, the California-based US internet giant, Facebook, announced its decision to buy 9.99 per cent stake in Jio Platforms Limited (JPL) paying more than Rs 43,450 crore. JPL is a 100 per cent subsidiary of Reliance Industries Limited (RIL) and has in its fold a wide spectrum of businesses such as wireless broadband, home broadband, enterprise broadband, narrowband, internet-of-things businesses, a bouquet of digital applications, e-commerce and so on. This was followed by a flurry of investments with big names such as General Atlantic, Silver Lake, Qualcomm, Intel,...
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