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Digital trade agreement of 1998 costs India, other developing nations $10 billion per annum

The paper, authored by Richard Kozul-Wright and Rashmi Banga, estimates the annual online global imports of ET to be $139 billion and the potential tariff revenue loss to developing countries to be $10 billion per annum

twitter-logoJoe C Mathew | July 17, 2020 | Updated 18:52 IST
Digital trade agreement of 1998 costs India, other developing nations $10 billion per annum
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Key Highlights

  • Unprecedented surge in digital transactions
  • WTO member countries unable to tax due to a moratorium on customs duties
  • Clarity on what constitutes Electronic Transmission is required
  • It is time to discuss the need to lift the moratorium

A research paper published by the United Nations Conference on Trade and Development (UNCTAD) suggests that the developing country members of the World Trade Organisation (WTO) maybe losing about $10 billion tax revenues due to a moratorium on customs duties on electronic transmissions (ET) agreed in 1998 and continued since then.

Stating that discussions on the fiscal implications of moratorium was almost entirely absent at the time of the agreement, the UNCTAD research paper 'Moratorium on Electronic Transmissions: Fiscal Implications and Way Forward', attributed  it to the non-existence of technology to collect customs revenues from ET at that time. The paper argues that it is time to look into the potential tariff implications and discuss the need to lift the moratorium as COVID-19 pandemic has led to a digital revolution resulting in high demand for electronic services. "The main exporters of these electronic transmissions are like Amazon Prime Video, Netflix, Nintendo, Rockstar etc are experiencing an unprecedented surge in their sales and profits, while governments are unable to collect any tariffs on these companies' exports due to the existing moratorium," the report points out.

The paper, authored by Richard Kozul-Wright and Rashmi Banga, estimates the annual online global imports of ET to be $139 billion and the potential tariff revenue loss to developing countries to be $10 billion per annum. The study suggests that the top six countries which face maximum tariff revenue loss from the moratorium are Mexico, followed by Thailand, Nigeria, India, China and Pakistan.

The researchers propose a classification of ET to be covered under the scope of the moratorium as there is lack of clarity at the classification level itself among WTO member countries. It proposes the scope of moratorium to cover only intangible goods like software, films, music, printed matter and video games, whether downloaded or streamed. The paper argues that customs duties can be products due to technological advancements and can take physical form after their importation. It also says that the implications of moratorium on customs duties on ET goes much beyond customs tariff losses for developing countries due to the advancements of new digital technologies like 3D printing. The report argues that developing nations should come forward to support the removal of the moratorium to preserve their policy space.

Incidentally, the office of the US Trade Representative (USTR) has in June initiated Section 301 investigations (that can even lead to trade sanctions) against various countries, including India, for considering or adopting taxes on revenues from digital services by stating that such Digital Service Taxes (DST) are likely to impact US-based tech companies more than others. The complaint against India is that it imposed 2 per cent DST in March 2020, which applies only to non-resident companies, and covers online sales of goods and services to, or aimed at, persons in India. The tax applies only to companies with annual revenues in excess of approximately Rs 2 crore ($267,000), thereby covering large US corporations like Amazon.

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