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Data Diplomacy and Digital Taxation

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A digital services tax can take several forms, but most commonly is a tax levied on digital platform services and the advertising revenue generated by users. More simply, foreign governments levy DST to capture revenue from digital platforms. For example, when an Indian citizen accesses Facebook, the advertising dollars they generate go back to Facebook and its U.S. headquarters, and a DST would seek to capture some of that revenue for the Indian government.

Digital services tax rates vary from 2-7.5%, and generally apply only to companies that have a certain level of global and in-country revenues. The most common European Union model, for example, levies a 3% tax on companies with at least €750 million in global revenues, and €25-50 million in domestic revenues. India’s DST, adopted in March 2020, levies a 2% tax on non-resident companies with more than Rs.20 million in global revenue. The minimum revenue requirement for these taxes by nature target U.S. tech giants, which have both the market size and global footprint that allow them to generate such high profits.

Despite these high levels of profit, most U.S. tech giants pay low tax rates relative to other multinational corporations of the same size. Thus, foreign governments levy DST as a way to capture revenue from the dominant foreign tech platforms, and protect local industries from foreign digital competition.

The European role in shaping the DST discussion and the U.S. response to DST

In response to rising popularity of DST around the world, the U.S. initiated Section 301 investigations in June 2020 against ten of its trading partners who have implemented or proposed a DST: Austria, Brazil, the Czech Republic, the European Union, India, Indonesia, Italy, Spain, Turkey, and the United Kingdom.The USTR’s June 2020 Section 301 investigations note concern that DSTs “[discriminate] against U.S. tech companies” and may “[penalize] technology companies for their commercial success.”

With the exception of Brazil, Turkey, and India, the majority of these Section 301 investigations focus on European Union countries. This makes sense, given the EU’s hardline tactics against U.S. tech platforms, especially under Commissioner for Competition Margrethe Vestager, widely known for her assertive anti-trust maneuvers against tech platforms in the EU.

Notably, the USTR had already initiated Section 301 investigations against France in July 2019, following France’s announcement that it would levy DST against tech platforms. Accordingly, this tax became known as the “GAFA tax,” for Google, Amazon, Facebook, and Apple. However, France backed down on its plans to collect these taxes in 2019 following the response from the U.S. that they would raise tariffs on French exports like wine, cheese, and other popular goods. On June 17, 2020, USTR Robert Lighthizer announced that the U.S. had pulled out of DST negotiations with the European Union as talks stalled.

OECD tax rules and the digital economy

The Organization for Economic Co-operation and Development (OECD) traditionally stipulates that tax should be levied based on where a company has physical presence, as ZDNet reports. However, problems arise in the digital economy, where the borderless nature of the Internet, and increasing numbers of users connected to digital platforms around the world obfuscate the definition of “physical presence.”

In response, the OECD isdeveloping a separate tax framework for the digital economy, addressing challenges around taxing multinational companies whose customers are often thousands of miles and borders away from where the tech company has their headquarters. Virtual OECD digital economy negotiations are scheduled for October 2020, following a delay related to COVID-19. Both the U.S. and China, home to the world’s largest tech giants, are proponents of a digital taxation framework that favors the digital economy; that is, without DST. Many European Union countries, including France, have deferred implementation or collection of a DST until an OECD agreement is reached.

From one angle, a DST makes sense: you, as a government, need revenue, especially following the economic fallout of COVID-19. In the attention economy, every minute a citizen spends on a platform headquartered outside of your country is a “dollar” of attention not spent on domestic platforms or domestic issues. However, because digitization is a new issue, digital taxation and trade are also emerging fields, and thus many tech platforms are not taxed at the same level as their brick-and-mortar counterparts. What are you, as a foreign government, supposed to do when your citizens are spending all their time on Facebook?

U.S. tech platforms are sometimes perceived as being under-regulated and under-taxed relative to the influence and footprint they have. This is what has led to their meteoric rise, both domestically in the U.S. and abroad. Digital services taxes make sense as a “band-aid” for a much thornier issue that will not be fixed by taxing advertising revenue made in-country: increasing polarization and information warfare conducted on these platforms.

Global polarization and the impact of DST

Disinformation and misinformation are and will be the conflicts of the 21st-century polarized world. Information warfare results in confusion for citizens around the globe, which erodes trust in citizen-government relations and weakens democratic systems. Tech giants, with their open and generally unregulated systems, offer perfect platforms for malicious agents to conduct this information warfare, raising concern and alarm for governments everywhere. At a time when governments and tech platforms should be coming together to combat information warfare, DST further polarize relations between these two entities. Governments that implement these taxes introduce friction into their relations with tech companies at a time when collaboration should be prioritized.

Some may bristle at the concept of equating a private U.S.-owned company with a government. But the reality is that tech platforms, in many cases, have more prominence in the daily life of the average citizen around the world than governments. Think about how many touchpoints you have with a digital service or platform provided by Facebook, Amazon, Apple, Netflix, or Google every day, versus the touchpoints you have with your local government. That’s not even including the tens of thousands of websites run on AWS, Amazon’s cloud computing breadwinner.

A call to action

In the 21st-century world, tech platforms are here to stay. Governments and their diplomatic corps, therefore, should do everything they can to collaborate and cooperate with major tech platforms, and vice versa. Tech platforms, therefore, also cannot miss the mark in underestimating their own power in shaping democracy, diplomacy and political discourse.

The increasing impact of digital platforms and data privacy now prominently feature in conversations about the future of democracy. Democratic governments and tech companies urgently need an actionable framework for digital cooperation, especially with the rise of dual-use technologies like facial recognition and artificial intelligence. Both governments and tech companies must take responsibility for their own spheres of influence and explore all possible pathways to cooperation, in order to combat and dissuade the many forces conspiring to erode the pillars of democracy and citizen governance around the world.

Puru Trivedi is Meridian International’s Vice President of Corporate Affairs, with direct responsibility for the Meridian Corporate Council and leading commercial diplomacy initiatives across the organization. Prior to joining Meridian, Puru worked across the financial services, policy advocacy and consulting industries. Puru can be contacted through email ptrivedi[at]meridian.org a nd his full bio is located here: https://www.meridian.org/leadership/ Past Written Work:

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A book on Nepal’s diplomatic story of co-existence

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Recent diplomatic friction between Nepal and India over the new Nepali map including India-controlled territories of Lipulekh, Kalapani and Limpiyadhura encouraged me to go though some Indian perspectives on the Nepal’s diplomacy.

For this, I revisited the book titled ‘FOREIGN POLICY OF NEPAL’ authored by Indian professor SD Muni. This PHD-thesis-cum-book published in 1973 gives some insights on Nepal’s diplomatic developments as an oldest sovereign country in the South Asia.

However, this book has some visible bias towards Nepal. For example, it ranks Nepal not as a diplomatic ‘power’ but only as a ‘mini power’. The author has given instances of Nepal’s military assistance proving instrumental to quell mutinies both in times of British India in 1857 and independent India in 1948. Nevertheless, he does not want to term Nepal as a diplomatic ‘power’ even in this era of peaceful diplomacy with soft powers.  Still, in the chapter called ‘conclusion’, he concludes, ‘Nepal’s geographical location between India and China was also an asset since it placed the kingdom in a strategic position.’

Having read Nepal’s foreign policy perspective from an Indian angle of professor Muni, I came across the book titled ‘India meets China in Nepal’. Written by Girilal Jain, the editor of India’s top English daily The Times of India from 1978-1988, I got this book by the daughter of the author, Sandhya Jain. Jain, also a noted historian of India, generously mailed me the original PDF of this book.

Girilal Jain had close rapports with influential figures of Nepal including the then Prime Minister Tanka Prashad Acharya when he started working on this book from 1956-1957. He said he started working on this volume just after Nepal signed treaties on Tibet and economic assistance with northern neighbor China to which ‘many Indians were alarmed by this shift in Nepal’s foreign policy in favor of communist China.”

Jain has written this book with factual logics and interpretation of Nepali narration. Together with background and important treaties of Nepal and China, Nepal and India, this books includes chapters like ‘ end of Rana rule’, ‘experiment of democracy’, ‘the crisis deepens’, ‘first general elections’, ‘Indo-Nepalese relations’, ‘consequences of Tibet’. 

In all of these chapters, Jain gives crystal clear facts of Nepal’s political, diplomatic and democratic practices. He has not diluted these facts with his unproven individual interpretations like most of the contemporary Indian journalists and intellectuals do.

The most important and must-read chapter is ‘Nepalese version of co-existence.’ Unlike, Indian state establishment and its sympathizers, Jain has not provoked Nepal’s diplomatic and economic engagements with northern neighbor China.  He has made close observation of the premierships of Tanka Prashad Acharya and Dr. K.I. Singh. Acharya, Jian writes, was accused of being pro-China. On the other hand, Acharya’s successor Singh was vocally pro-India.

Singh even officially stood behind India in Kashmir conflict on 3 August 1957 saying, ”we shall support India on the issue over the Kashmir issue. There is no doubt about it. Kashmir was and is a part of India and the people of Kashmir desire live with the Indian union.”

This vocal pro-Indian stand of Nepal on the Kashmir issue is first and last. Sigh could not prolong his stay at Singhadurbar more than 110 days owing to this pro-India stand by diplomatically neutral Nepal. King Mahendra sacked him.

The author also pictures the then power games played by the then two opposing superpowers- USA and USSR. He justified this narration by saying, ”Soviet Government has also entered the race for winning over Nepal to its side. The Soviet Embassy has already been set up in Kathmandu; the American Embassy has already been opened because the US cannot allow itself to be beaten by Russian in this competition for influence in Nepal. Thus, Nepal has been drawn into the vertex of the cold war.”

This book gives every detailing of Nepal’s diplomatic dealing with its giant neighbor India and China ,to which it shares long borders of around 1800 and 1414 kilometer respectively, along with its neutrality towards the global diplomatic power plays exercised by the then world superpowers of US and USSR.

Despite being a well-versed book, the author, however, has made some wrong prediction and interpretation on Nepal’s communist parties. ”Should the strength of the Communist Party of grow in India, particularly in the bordering states of West Bengal, Bihar and U.P., Nepal will feel its impacts,” argues the author, ”If communism is finally routed in India, its fate will be sealed in Nepal as well.”

At a time when the 34-year-old communist-run state state of West Bengal has been ousted in bordering India, Nepal has seen the most powerful communist government in Nepali history with close to two-thirds of seats in the parliament and six out of seven state governments, author’s narration has come untrue.

Many global political pundits are picturing a new version of cold war between China and USA in the post-pandemic world. The ongoing border tensions between immediate neighbors of India and China are also  at play. At this critical juncture, Nepal needs to stay stronger on its neutrality more than ever. The book ‘India meets China in Nepal’ published in 1959 can be a brief reminder of Nepal’s deeds towards this end.

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The theatrics before the Quad Meeting

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Image source: Kantei/Tiwtter.

Authors: Mozammil Ahmad  and Sruthi V S*

According to a Hindustan Times report, an anonymous senior US state department official has  dismissed the talk for formalizing the Quad ahead of the ministerial Quad meeting to be held in Tokyo on 6th October.

The Quad or the Quadrilateral Security Dialogue is the informal forum between the US, Japan, Australia and India. Its origin goes back to the 2004 Boxing Day Tsunami. The adjunct grouping of US, India, Japan and Australia as the ‘Tsunami Core Group’ was formed to respond to tsunami. The concept of a “Quadrilateral Initiative” as a strategic alliance was first proposed as a dialogue in 2007. It was proposed by the then Japanese Prime Minister Shinzo to form a multilateral dialogue with Japan, the United States and Australia but it fell in 2008. Then, in 2017, the quad was revived and it began convening on a semi-regular basis.

US and the Quad

The US interest in Quad began when it found itself in a strategic competition with China. The US has been rethinking its stance against China before the coronavirus outbreak. The 2017 National Security Strategy of the Trump administration asserted that China seeks to challenge America’s power and influence. Meanwhile the 2018 National Defence Strategy termed Beijing as the “strategic competitor.” China expanded its international influence through its economy and the BRI to challenge the existing world order. However, during the pandemic, the US-China tensions have accelerated. This led the US to explore alliances in the Indo-Pacific region.

The first instance of US interest in the Quad began in March 2020 when the US initiated a weekly online meeting between Deputy Secretary of State Stephen Beigun and his counterparts in India, Japan, Australia, Vietnam, South Korea, and New Zealand to discuss and exchange views on how to deal with the pandemic. This initiative of the US is more than just exchange views, it also became a coalition of countries with similar views on China. The core countries of the Quad – India, Japan, Australia, are facing their respective security challenges posed by China forming a ”Quad Plus”.

Therefore, the upcoming ministerial Quad meeting holds strategic importance for the US to form a counter to China’s posture under President Xi Jinping.

Then why is the US not eager to formalize the Quad?

In international relations, there is no selflessness. Every move must extract all possible gains. I propose the consideration of the following three factors for the recent US stance-

US Economy

The US economy has plunged 31.4%  for the April-June quarter. Economists expect the US GDP to fall even more, making it the first time it has decreased since the financial crisis of 2008. Gregory Daco, the chief US economist at Oxford Economics has said, “With economic momentum cooling, fiscal stimulus expiring, flu season approaching and election uncertainty rising, the main question is how strong the labor market will be going into the fourth quarter.” The economic condition of the US is not such to fully commit and invest in a multilateral alliance.

US Presidential Election

The October 6 meeting is being held when the US Presidential election is only a month away. There is an ongoing aggressive campaign battle between Donald Trump and Joe Biden for the Presidential election. Both Democrats and Republicans are wooing American-Indian community towards their side. While Democrats project Kamala Harris as a multiracial VP candidate, the Republicans are highlighting Trump-Modi friendship to consolidate support for their respective parties.

The Hindustan Times report mentions that “human rights organisation Amnesty International’s decision to shut down its India operations had “received attention at the highest levels” of the Trump administration and it was being followed “very, very closely” by members of US congress.”

This is not yet an official statement of the US State Department. With the reportage in the Indian English media and clear indication towards a domestic event of India, it could be seen as a pressure tactic on the Indian government. With the Trump campaign’s reliance on friendship with Modi, this could be a subtle way of asking the Modi government to appreciate the friendship. Hence, increasing Trump’s appeal to the American-Indian community.

This is also a typical strategic way to use the soft power of media to influence diplomacy. Maybe U.S wished to propose a few trade deals favourable for them and reports of lack of keenness of U.S to formalize quad may influence other countries to agree to the demands of U.S and appease it.

Commitment Issues

At a U.S-India Strategic Partnership Forum in August, when asked about the attempts to formalize the Quad Plus, the US Deputy Secretary of State Stephen Biegun remarked that ”so as long as we keep the purpose right and as long as we keep the ambitions checked to start with a very strong set of members, I think it’s worth exploring an (inaudible) like that, although it only will happen if the other countries are as committed as the United States.”

The new Japanese Prime Minister Yoshihide Suge spoke to his Chinese counterpart Xi Jinping last week where both the leaders agreed to hold summits and other high-level meetings to cooperate in bilateral, regional and international issues. The goodwill conversation is considered as the improvement for China-Japan relations.

The US could be questioning the commitment of the fellow members of the Quad, and refraining from formalizing it. The recent statement has also mentioned that, “America wanted to strengthen existing regional architectures, not create new ones.”

The Quad plus meeting held on 6th October reflected a continuation of their past style of cooperation. The four ministers agreed to convene regular meetings with the next meeting scheduled for next year. For now, the Quad is considered symbolic, though the US Secretary of State Mike Pompeo made remarks to potentially institutionalize Quad. However, much is happening in the world, with the global pandemic, economic slowdown faced by many countries and the US Presidential election, to suggest the future course of the Quad.

 *Sruthi V S–  Sruthi is a Consultant with Qrius (formerly The Indian Economist). She has previously taught as Assistant Professor in Journalism and Mass Communication at the University of Delhi, India. Her research interest includes art, culture, world, media, politics.

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Bhutan – India: A multi- dimensional relationship. interview with H.E. Amb. Ruchira Kamboj

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India and Bhutan have shared an interesting relationship for a very long time. They are geopolitical neighbours, trade partners and friends. In this conversation with Modern Diplomacy, Her Excellency Ambassador Ruchira Kamboj, Ambassador of India to Bhutan sheds more light on the India Bhutan relationship and her work in the Indian Foreign Services.

When did you decide that you wanted to join the foreign services? Tell us more about your journey.

That was quite early I would say – while in school. I enjoyed the pursuit of, and discussions on international relations, and greatly looked forward to actual practice! I guess I was fortunate and quite blessed that this aspiration came true.

The relations between India and Bhutan have been historically significant and more so now when the former’s relations with few other neighbours seem to be muffled with confusion and disturbances. What do you believe will strengthen India – Bhutan’s bond even more?

Bhutan and India are bound together by ties of geography, history, culture, spiritual traditions and centuries old people-to-people interactions.

The special friendship has not only benefited our two nations, it has also created an example for the whole world, an epitome of two nations, of two different sizes, living together for collective growth, bound by an unparalleled friendship.

Both Bhutan and India  have young populations. Both Bhutan and India are rapidly transforming societies. A greater focus on youth-centric activities both sides through enhanced exchanges and connectivities, in particular in those sectors where India brings unique strengths to the table, such as IT, STEM, Start-Ups, could potentially be hugely beneficial for further growth and progress. As one tiny example, this year itself, eight Bhutanese students have entered our IITs against their chosen Masters’ Programmes.

This ties in with His Majesty’s vision and focus on STEM, where technology is rapidly transforming the world around us, and where the pace of scientific advancement is relentless in its pursuit towards creation.

What other plans and bilateral agreements can we foresee other than energy (hydroelectric) and tourism that will be a boon for both the South Asian countries?

The relationship between Bhutan and India today is multi- dimensional encompassing diverse sectors, not being limited to the traditional sectors but opening up to new and emerging spaces such as financial technology cooperation, IT, Start-Ups and Space Science and Technology, for mutually beneficial growth and cooperation.

I am pleased to share and following the visit of Prime Minister Modi to Bhutan in 2019, action has matched talk, and we are well into implementing much of what was envisaged during this memorable visit,     reflective of our commitment to advancing the economic and infrastructural development of Bhutan, per the priorities and wishes of the      Government and the people of Bhutan. 

Speaking of energy diplomacy, what are your personal views on the environment and climate change? What lessons can the world learn from Bhutan’s carbon-negative approach?

There are no two views that the world needs to think and act green, to support sustainable growth. India under Prime Minister Narendra Modi  has embarked upon a massive upward trajectory as we seek to harness solar and wind energy to power our future. The International Solar Alliance is one example -since 2015, this 87 signatory-alliance is propelling Earth to a low-carbon growth path. Similarly, the Coalition for Disaster-Resilient Infrastructure aims at a climate-change and disaster-resilient future for all.

As for Bhutan, you are truly an example to the world, having envisioned the “requirement” to be green in your country’s constitution, and being practically the world’s only carbon negative country. Importantly, you are not just resting on past laurels but  diversifying slowly but steadily into new spaces- into renewable energy such as solar and wind power; towards green transport; the ban on single-use plastic etc. These, among others, are examples of a country that is deeply respectful and committed to the environment. This is without doubt a tribute to the   vision and leadership provided by the Druk Gyalpo of Bhutan, as most recently reiterated at the UN Secretary General’s High Level RoundTable on Climate Action by Lyonchhen Dr. Lotay Tshering.

As mentioned before, both countries have also been focusing on cross-cultural tourism with initiatives like digital payments making the process more convenient. Can you speak more about this and the different contours that need to be strengthened?

We share His Majesty’s vision for harnessing technology towards economic development and towards strengthening our partnership in new areas such as digital and emerging technologies, financial integration etc.

To this end, Prime Ministers Shri Narendra Modi and Dr. Lotay Tshering had launched the first phase of the Rupay Card in 2019. With this , Indian citizens have been facilitated in making payments with their Indian bank-issued debit cards, in Bhutan. A second phase to be launched in 2020 , will enable the use of Bhutanese bank-issued RuPay Cards across Points of Sale terminals in India. This will benefit all Bhutanese citizens who visit India for education, medical treatment, pilgrimage, work or tourism.

This cross border financial integration will further facilitate our warm people-to-people contacts and integrate furthermore the economies of our two countries.

Your father was an Army officer and your mother, a Professor at Delhi University. Do you credit your success to the environment you were brought up in? How important do you think are parents’ support to a child for achieving some feat?

I would agree with you that the early childhood years are critical in shaping future orientation. I was fortunate and blessed in having a vision and values through personal examples from my parents, that have stood me in good stead. I wish that for every child on this planet-that their potential is fully realised in safety and with opportunity.

You seem to have an eye for Bhutanese art and culture. You also have been promoting a film called Lunana recently. Tell us more about that.

It is always a privilege to serve as India’s Representative abroad and to get a rare insight each time into a country’s culture and way of being, so to speak. The more so, with a country like Bhutan, which offers such a rich and unique mosaic, in itself. 

Speaking of “Lunana”, I was personally thrilled that this will be Bhutan’s official entry to the Oscars, an exquisite opportunity for the world to learn more about this singularly unique country.

Tell us about your previous experiences, of representing India at UNESCO and being a high commissioner to South Africa.

There are no two ways about this:  it is an outstanding honour each time to bat for India. It was thus my privilege to serve both as Ambassador of India within the multilateral settings of UNESCO, Paris and as High Commissioner of India for South Africa, a country with which India has a shared history  and importantly and going forward, an equally rich future.

If not Foreign Service, what else would you have pursued?

I am indeed fortunate to have lived my dream, I had frankly only envisaged this as a career.

What is the most important lesson you have learned in the 33 years of your glorious service?

A simple message: lead by example. 

A message to the young Indians who want to represent their country globally.

I would unequivocally and unhesitatingly say this to my Indian friends that if you do wish to represent your country globally, the best way to do so is through the Indian Foreign Service, an opportunity and a challenge, like no other!

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