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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