India Submits Digital Services Tax Amendment Bill
UK Discusses Abolition and Reduction
South Korea Introduced Similar System in 2018
Ahead of the announcement of reciprocal tariffs by the Donald Trump administration, major countries around the world have begun aligning with the so-called 'Trump code' by abolishing or reducing the digital services tax, commonly known as the 'Google tax.' It is observed that President Trump's threat last month, which defined foreign governments' digital services tax (DST) and technology regulations as plundering against American companies, has been effective.
According to the Economic Times of India and others on the 25th (local time), the Indian Ministry of Finance submitted a financial bill to the parliament to abolish the digital services tax that imposes a 6% tax rate on advertising revenue earned by multinational IT companies.
India introduced the digital services tax system in 2016, arguing that multinational digital platforms such as Google, Facebook, and Amazon do not properly pay taxes on money earned from online advertising. If these companies generate more than 100,000 rupees (approximately 1.72 million KRW) annually in online advertising revenue targeting Indian companies, they must pay 6% of the advertising revenue as tax. This is similar to the digital services tax introduced by the European Union (EU) and the United Kingdom.
The United Kingdom, which introduced the digital services tax in 2020, is also considering abolition or reduction during reciprocal tariff negotiations with the United States. The UK attempted to pursue a free trade agreement (FTA) with the US immediately after leaving the EU but failed; at that time, the abolition of the digital services tax was also considered as an incentive. Peter Mandelson, the British Ambassador to the US, said in an interview with the UK Financial Times (FT) on the 22nd, "The digital tax itself is on the negotiation table. Various alternatives are being considered besides abolition." Rachel Reeves, the UK Chancellor of the Exchequer, also reaffirmed on the 23rd that "discussions are ongoing" regarding the digital services tax.
In apparent response to the UK's efforts, President Trump also discussed progress in trade negotiations between the two countries during a phone call with UK Prime Minister Keir Starmer. A spokesperson for the UK Prime Minister's Office said on the 24th that the two leaders spoke by phone late the previous afternoon and "briefly discussed progress made regarding the economic prosperity agreement." According to US Reuters and AFP news agencies, the agreement under discussion between the two countries centers on technology and artificial intelligence (AI) and is smaller in scale than an FTA.
The digital services tax was actively discussed worldwide in the late 2010s. It was discussed mainly by the Organisation for Economic Co-operation and Development (OECD) and the Group of Twenty (G20), and OECD member countries even drafted policy proposals around 2018-2019. However, the implementation was effectively abandoned as the US and others did not agree to ratification procedures, and the tax was introduced on a country-by-country basis, including European countries such as the UK, France, Italy, Austria, Turkey, and Canada.
South Korea expanded the scope of value-added tax (VAT) to cover all overseas company services, including the Google Play Store, through tax law amendments in 2018 during the Moon Jae-in administration. This is the Korean version of the Google tax. However, this still has the limitation of being a VAT rather than a corporate or income tax. Although voices calling for strengthening the digital services tax continue to emerge in the National Assembly and elsewhere, the South Korean government appears to be taking a low profile ahead of reciprocal tariff negotiations with the US.
Choi Sang-mok, Deputy Prime Minister and Minister of Strategy and Finance, emphasized at the Foreign Economic Issues Meeting on the 14th of last month, "Considering that the US has announced it will evaluate not only tariffs but also non-tariff barriers such as VAT and digital services tax, it is necessary to closely monitor the situation."
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