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“Equalization levy ensures fair competition”: Indian govt defends against US Trade Representative’s critical report

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The purpose of equalization levy (EL) is to ensure fair competition, reasonableness and exercise the ability to tax businesses that have a close nexus with the Indian market through their digital operations, said the Indian government, in response to the United States Trade Representative's report. In a statement released on Thursday, the Ministry of Commerce said that absence of EL allows non-resident e-commerce operators to avoid taxes on services made available in the Indian market. Earlier this week, US Trade Representative Robert Lighthizer released a 41-page report criticising India's decision to impose an EL of 2% on digital services offered by foreign firms. It had said that the levy is "discriminatory on its face" as it target non-Indian firms, while exempting Indian companies. The result is that U.S. “non-resident” providers of digital services are taxed, while Indian providers of the same digital services to the same customers are not. This is discrimination in its clearest form,” the USTR’s report had said. The report had also questioned similar digital services tax regimes in Turkey, France, Italy, Spain, UK and Austria. The EL was introduced by India in 2020, along with other countries' introducing their own digital services tax, including France. The US government, prompted by American companies, have argued against the tax. The OECD, meanwhile, is holding talks to overhaul the global tax system, without much progress. India has in the past defended the tax, calling it "entirely consistent with India's commitments under the WTO and international taxation agreements". 'Indian firms already…

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