As India removes its digital services tax amid trade tensions, experts warn that the evolving digital business landscape outpaces existing regulations, complicating efforts to tax multinational tech giants effectively.
The debate over how to tax digital profits has become more complicated just as India’s biggest online platforms continue to dominate commerce, search and advertising. Business Today noted that Amazon controls at least 30% of India’s e-commerce market, while Meta reaches more than 1 billion users across Facebook, WhatsApp and Instagram, and Google’s search share in India exceeds 97%, according to Statcounter Global Stats. Against that backdrop, a FICCI-EY report says digital advertising revenue, excluding subscriptions, could reach Rs 1.4 lakh crore by 2028. The scale of that money explains why governments keep returning to the question of where digital profits should be taxed.
The issue sharpened in June 2026, when Donald Trump threatened a 100% tariff on imports from countries that levy a digital services tax on US technology firms. The move reflected a broader dispute over whether countries can tax revenues earned from users and advertisers inside their borders when the companies involved may have little or no physical presence there. Business Today said India was one of the countries pulled into that fight, but the challenge is global: tax systems built around bricks-and-mortar businesses have struggled to adapt to platforms that sell advertising, data and services across jurisdictions.
India’s own answer was the equalisation levy, introduced in 2016 at 6% on certain payments to non-resident companies and expanded in 2020 to cover e-commerce supply and services at 2%. A Drishti IAS explainer says the levy was designed to tax income earned by foreign digital firms that were not otherwise caught by the normal permanent establishment rules. Business Today reports that the 2% charge was removed in the Union Budget 2024-25 and the 6% levy was later scrapped, leaving India without a dedicated digital services tax. According to the article, the change came amid trade tensions and renewed pressure from large technology companies.
Tax specialists quoted by Business Today said the deeper problem is structural. Arush Khanna of Numen Law Offices argued that digital business has moved faster than regulation, especially in areas such as cryptocurrency and online gaming. Amit Agarwal of Nangia & Co LLP said India has long struggled to tax foreign technology profits because treaties generally require a permanent establishment before business income can be taxed. The OECD’s Pillar One blueprint tries to reallocate some taxing rights to market countries, but the organisation’s own material shows that the plan remains politically and technically difficult, while a US Congressional Research Service report says the wider dispute has moved far beyond the original digital services tax model.
For now, the numbers suggest India may have sacrificed limited revenue for diplomatic breathing room. Ketan Dalal of Katalyst Advisors told Business Today that the levy raised only about Rs 3,900 crore at its peak, a small sum relative to the size of the economy. Rohinton Sidhwa of Deloitte India said further progress on Pillar One looks unlikely in the current geopolitical climate. Swapnil Kothari of S. Kothari & Co said a unilateral revival would be hard to justify, especially when countries such as the UK, France, Italy and Spain still retain some form of digital levy while India and Canada have moved away from theirs. The result is a tax regime still trying to catch up with a business model that no longer respects national borders.
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