India's Digital Tax Will Be Withdrawn Once Global Reform Effective: Finance Minister Sitharaman

Finance Minister Nirmala Sitharaman on the global tax reform agreement and India's position.

<div class="paragraphs"><p>Nirmala Sitharaman, India's finance minister. (Photographer: Christopher Goodney/Bloomberg)</p></div>
Nirmala Sitharaman, India's finance minister. (Photographer: Christopher Goodney/Bloomberg)

Finance Minister Nirmala Sitharaman has confirmed that India will withdraw its digital tax, also known as Equalisation Levy, once the global tax reform agreement is implemented.

Speaking to Bloomberg while on an official visit to the U.S., Sitharaman said the equalisation levy was introduced by India at a time when the world had not yet agreed to tax reform to counter large digital companies escaping tax in several countries despite earning significant revenue from customers there.

It is to close gaps such as these that, earlier this month, 136 countries and jurisdictions agreed to an international tax reform agreement that sets a global minimum corporate tax rate and seeks to reallocate taxing rights in an effort to stop profit shifting. In exchange it requires participating countries to end any digital levies on multinational companies and commit not to introduce such a measure in the future.

India is among the 136 countries. "Naturally after all us have agreed on a global minimum tax, that (Equalisation Levy) will have to be withdrawn," the minister said.


She also commented on negotiations by India and a few others seeking a larger share of revenue of large multinational enterprises that operate and generate profits in India even if they do not have a conventional taxable presence here.

Currently, Pillar One of the global tax reform agreement covers MNEs with global sales above 20 billion euros and profitability above 10%. 25% of their residual profit, that is profits in excess of 10% of revenue will be allocated to market jurisdictions based on new special purpose nexus rule.

While this is higher than the 20% allocation in the July plan, India would have preferred a number closer to 30%, Sitharaman said.

"The concerns till before we agreed were on what is going to be the apportionment of the profit that is going to be taxed. We had asked for a near 30% rate. As it is, having conceded the first 10% of profit, it is only fair to ask for something closer to 30%."

She said a few other countries too shared this view but after negotiations "eventually all of us agreed so that there is at least one agreement quite a long time after the world has desired."

Global Tax Reforms Are The End Of All Tax Evil?