India, US extend 2% digital tax on e-commerce to June 30

India and the United States have decided to extend the 2% equalisation levy, or digital tax, on e-commerce deliveries until June 30, the finance ministry said on Friday. In a significant reform of the international tax system, India and the United States joined 134 other members of the OECD/G20 inclusive framework (including Austria, France, Italy, Spain and the United Kingdom) in reaching an agreement on October 8, 2021, on a statement on a two-pillar solution to address the tax challenges arising from the digitalisation of the economy.

On October 21, 2021, the United States and Austria, France, Italy, Spain, and the United Kingdom reached a political compromise on a transitional approach to unilateral measures applicable during the implementation of Pillar I.

On November 24, 2021, India and the United States agreed that, in India-US relations, the 2% equalization tax levied by India on the supply of e-commerce services and the United States’ trade activities relating to the said equalization tax will apply the same conditions as apply under the October 2021 Joint Statement.

This agreement was valid from 1 April 2022 until the date of implementation of Pillar 1 or 31 March 2024, whichever comes first.

On December 18, 2023, the Inclusive Framework issued a statement calling for the text of the Pillar I multilateral convention to be finalized by the end of March 2024, with a view to holding a signing ceremony by the end of June 2024.

On February 15, 2024, the United States and Austria, France, Italy, Spain and the United Kingdom decided to extend the political compromise set out in the October 21, 2024 Joint Statement until June 30, 2024.

“In light of the above developments, India and the United States have decided to extend the validity of the agreement reflected in the November 24 statements to June 30, 2024. All other terms and conditions of the interim approach remain the same,” the finance ministry said in a statement.

India and the United States will remain in close contact to ensure a common understanding of their respective commitments and will make every effort to resolve all issues in this regard through constructive dialogue, she added.