Modi’s Counter to Trump’s Move – The Digital Tax
Many friends have asked me to write in detail about the digital tax, calling it Modi’s counterstroke to Trump’s move.
There are several American businesses operating in India that do not pay any tax here. They earn their revenue from India but take all their profits back to their home country or to some other country where their headquarters are based.
The main companies in this category include Amazon, Google, Meta, YouTube, Facebook, Instagram, and WhatsApp. These companies earn huge sums by advertising Indian products on their platforms, yet India receives nothing from them in terms of tax revenue.
A few years ago, India had passed a digital tax law, but it was not enforced at the time because India was building a warm relationship with the United States. However, now that the U.S. has started putting pressure on India, Modi has taken the digital tax card out of his deck and shown it to America.
If the U.S. chooses to engage in a tariff war against India, it will suffer far more losses compared to India. Let me explain this in detail.
If the U.S. imposes tariffs, they will be added as customs duties on Indian goods entering the U.S. market. American consumers will have to bear the burden of these higher prices. Even if Indian exporters are forced to exit the American market due to competition, they still have the rest of the world as an alternative market. So, India and Indian businesses will not be significantly affected.
On the other hand, if the digital tax genie is let out of the bottle, American companies will have to pay crores or billions of dollars in taxes to India every year. The money they used to freely repatriate to the U.S. will now only go after deducting applicable taxes. This means a direct multi-billion dollar loss to the U.S.
After India’s digital tax threat, America now finds itself in a situation where it can neither swallow nor spit out the tariff snake.
Modi has shown once again that he prepares solutions in advance — even for challenges that may arise five years down the road.
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