India has exposed itself to retaliatory tariff from the US by its refusal to immediately withdraw the 2 per cent digital equalisation levy tax on global internet players. However, it intends to do so when the global minimum tax deal is in place.

Speaking to Bloomberg while on an official visit to the US, finance minister Nirmala Sitharaman said the equalisation levy — also called the Google tax — was introduced by India when there was no agreement on the global tax deal that seeks to thwart large digital companies from escaping tax in several countries despite earning significant revenues in these countries.

“Naturally after all of us have agreed on a global minimum tax that (equalisation levy) will have to be withdrawn,” she said.

However, the US may impose retaliatory tariffs on India next month over the 2 per cent digital tax on foreign tech majors as it has not joined the agreement to immediately restrict the use of such unilateral measures in light of the global digital taxation deal finalised by 136 countries at the Organisation of Economic Cooperation and Development (OECD) earlier this month.

Under the agreement, any digital taxes the countries collect from such firms after January 2022 that exceed what they would have to pay under the new rules would be credited against the firms’ future tax liabilities in those countries.

In exchange, the US agreed to drop its planned tariff retaliation against five countries on the grounds that their taxes discriminated against American companies. The agreement does not include two other countries that have imposed digital services taxes and face tariff threats: India and Turkey, US Trade Representative Katherine Tai has said in a statement.

The office of the US Trade Representative (USTR) had in June decided to suspend by 180 days additional tariffs of up to 25 per cent ad valorem on aggregate level of trade on a slew of items including basmati rice, sea food, bamboo, semi-precious stones, and pearls, hoping for a multilateral solution on the issue of digital taxation at the OECD.

However, trade experts said the tariffs may have little impact on Indian exports and the overall economy, considering limited significance of these items in India’s export basket and demand inelasticity of most of the items the list.

Besides, the tariffs against India are aimed to mop up $55 million, which is as much as what India will collect from the US firms through equalisation levy, according to US estimates.