New Delhi: U.S. President Donald Trump recently issued a warning, stating that any country that imposes a digital tax on American technology companies should withdraw it immediately; otherwise, the United States will respond by increasing tariffs on their exports.
Known as the equalisation levy, India had already removed its digital services tax on non-resident American tech firms. The government announced this decision in the 2025-26 budget, and the change took effect from April 1, 2025. The move was aimed at easing trade negotiations with the Trump administration.
Earlier, it was expected that Trump would take a softer approach toward India on tariffs. However, with his recent imposition of a 50 percent tariff on Indian goods, speculation arose that India might retaliate.
Some Indian media reports suggested the government could impose digital service taxes on American companies such as Alphabet (Google’s parent company), Meta and Amazon. However, there has been no official confirmation from Indian authorities.
To date, Trump has imposed tariffs ranging from 10 to 50 percent on over 90 countries. India and Brazil face the highest tariffs at 50 percent. The tariffs on Indian exports to the United States came into effect on August 27, 2025.
What Is Digital Service Tax?
Digital service tax applies to large international tech companies that operate in a country without a physical presence there. Traditionally, corporate tax applies only when a company has a permanent establishment in a country.
However, companies such as Google, Meta, Amazon and Netflix generate billions of dollars from many countries without local offices. Their revenue primarily comes from advertising and various online services.
Countries argue that even if these companies are not physically present, they earn income from their citizens and therefore should pay taxes.
Who Does It Affect?
This tax typically targets foreign firms earning money from users in a particular country.
It covers services such as online advertising, which Google, Meta and YouTube use to generate income. E-commerce platforms such as Amazon and Flipkart earn through product sales. Online marketplaces like Uber and Airbnb, as well as streaming services such as Netflix and Spotify, also make money from users worldwide without a physical office.
These companies also profit from user data by offering targeted ads to advertisers. In India, this tax is called the equalisation levy. It was introduced in 2016 at 6 percent on digital advertising but was removed in the 2025-26 budget. A 2 percent transaction tax on e-commerce companies was also abolished earlier.
Canada And The EU Retreat
Canada recently announced the withdrawal of its digital taxes on American tech firms just hours before the first payment was due. This move aimed to restart trade talks with the United States, given that 80 percent of Canada’s exports go to America.
Trump called Canada’s tax a “direct attack” and had cancelled trade negotiations, threatening to impose additional tariffs on Canadian imports.
European Union countries have also paused plans to impose digital service taxes on U.S. tech giants. This is seen as a major win for Trump and companies such as Apple and Meta.
Trade talks between the European Union and the United States continue, with Europe concerned that taxing digital firms might derail progress.
What Do American Tech Companies Say?
U.S. tech firms earning abroad without physical offices oppose digital taxes. They argue that they already pay taxes in their home country and these new levies force them to pay twice.
The U.S. government views these taxes as discriminatory.
Critics claim digital taxes ultimately hurt small local businesses and consumers because companies pass on the tax costs by raising prices.
Trump considers digital service taxes a direct attack on American tech profits and American interests. Europe uses these taxes as a way to raise revenue, while China restricts U.S. companies’ market access to protect domestic firms.