According to a letter viewed by Reuters, the U.S. Chamber of Commerce, together with eight other lobbying groups have urged India to delay a new digital tax, which will hit big U.S. tech firms like Facebook and Google as they are fighting the fallout of the coronavirus. 

India imposed a new 2 per cent tax on foreign billings, where organizations take payment abroad for digital services provided in the country, from 1^st of April. This tax is also applicable to foreign e-commerce transactions on sites such as Amazon.com.

The tax added into budget amendments passed in March surprised the industry as it was not a part of the main proposal that was presented in parliament a month earlier by India’s finance ministry.

The nine lobbying groups, from the US, Europe, Asia and Australia, wrote a joint letter to India’s finance minister today, urging that the tax should be held up by nine months and for an industry-wide consultation before its implementation.

The letter stated that the timeframe within which this extensive new course of action was approved and enforced allowed for neither the dialogue nor the considerable structural changes that would be necessary for companies to comply. It also mentioned that the Indian market is a highly critical market in which many of the members are deeply invested.

The signatories also included the Washington-based Information Technology Industry Council, DigitalEurope and the Asia Internet Coalition, other than the U.S. Chamber of Commerce.

The government’s new tax is aimed towards taxing foreign companies that possess a significant local client base in India but were billing them through their offshore units, effectively getting away with the country’s tax system.

The tax is also applicable to advertising revenue earned from organizations overseas if those advertisements in due course target customers in India.

Some of the experts believe that the tax risks alienating India’s trade relations further with various countries like the United States, which had already been concerned with New Delhi’s stricter rules for sectors such as e-commerce.

The e-commerce regulator, will be empowered to look for any information from companies to impose the new policy and even other Indian laws aimed at protecting consumers or ensuring fair competition on e-commerce.

The regulator will also have powers to enforce penalties if organizations fail to comply with such information requests or regulations.

The government of India has also been working on various policies to more strictly regulate data storage by technology companies. For e-commerce, the new regulator will presumably define categories of e-commerce data, which would have to be stored locally within the country.

“The new levy came out of nowhere… It will disrupt India’s trade relations perhaps in ways the drafters of the levy did not anticipate,” said Roger Murry of the Alliance for Fair Trade with India, a group of U.S. trade associations.