US decision to probe digital tax should not be treated as aggression against India: Sources

The US decision to launch a probe into the digital services taxes adopted or are being considered by some countries, including India, should not be treated as a move of aggression against New Delhi, government sources said on Wednesday.

The US has decided to launch an investigation into the digital services taxes that have been adopted or are being considered by a number of countries, including India, to "unfairly" target American tech companies, a senior US official has announced.

"(US) President (Donald) Trump is concerned that many of our trading partners are adopting tax schemes designed to unfairly target our companies," US Trade Representatives (USTR) Robert Lighthizer has said on Tuesday.

The sources said the announcement by the USTR on a Section 301 investigation into India's equalisation levy is merely a first step initiation and in no way represents definitive action against the Indian government.

"Moreover, this is not an intimation of tariffs or other punitive measures on India. It should be noted that this action by USTR is not targeted against India, instead this targets the policy of digital taxation that has emerged in a number of countries including Austria, Brazil, the Czech Republic, the European Union, India, Indonesia, Italy, Spain, Turkey, and the United Kingdom," they said.

The sources added that a number of US allies such as the EU and the UK are mentioned in this list, hence, it should be observed that this USTR action is meant to address the issue of digital taxation and should not be treated as a move of aggression against India.

They added that this is a consultative process that stems from initial concerns with India's equalisation levy.

The USTR has stated that it will seek comments from the US public regarding the potential impact of policies such as India's equalisation levy.

"Hence, the USTR is still collecting facts regarding India's policy and it may emerge that India's equalisation levy does not qualify as an unfair trade practice," one of the sources said.

Further, the sources said the US law mandates consultation with the alleged party -- in this case India -- hence India will have the opportunity to defend its taxation policy.

Even if the USTR determines India's policy is an unfair trade practice, India will have another opportunity to negotiate with the US and prevent the imposition of tariffs, they added. The USTR said India adopted a two per cent digital services tax in March 2020.