US DELAYS TARIFFS AGAINST DIGITAL SERVICES TAX

US DELAYS TARIFFS AGAINST DIGITAL SERVICES TAX

Subject: International Relations

Context: During the past week, the United States announced and then immediately suspended a 25% tariff on $2 billion of imports from six countries, including India, as a retaliatory measure against each of these countries’ imposition of a digital services tax.

Concept:

• The immediate suspension of the tariff is likely in part a recognition of the fact that the six countries potentially impacted are limping through a feeble post-COVID-19 recovery and opening a new trade war front could be damaging not only to them, but also to the broader global economy

Digital Services Tax

• The “digital services tax” (DST) is a levy on the overall revenues earned by the supplier of specific digital services.
• India has earlier expanded the scope of the Equalization Levy, or digital tax, to the sale of goods and services in the country by overseas e-commerce firms.
• The Equalization Levy was introduced for the first time in 2016 as 6 per cent tax on revenues earned by non-residents from online advertising and related services.
• The burden of this tax eventually fell on local firms advertising on these platforms.

Office of the United States Trade Representative (USTR):

• It is responsible for developing and coordinating US international trade.
• The Section 301 gives the USTR broad authority to investigate and respond to a foreign country’s action which may be unfair or discriminatory as well as negatively affect US commerce.
• Adopted through the 1974 Trade act, the Section allows the US President to impose tariffs or other curbs on foreign nations.
• However, the law mandates consultations with trading partners.