Getting An Equal Piece Of The Pie: Taxing The Digital Economy In South Asia And Latin America

Digital Services Taxes (DSTs) are a newly introduced fiscal tool aimed at taxing digital companies and have emerged as a direct consequence of the failure of existing international tax standards to tax these companies. Nearly 100 countries including India, Nepal, Pakistan, and Sri Lanka either implemented or proposed DSTs. Unlike the traditional tax problems that involve two competing tax jurisdictions, digital platforms can involve three competing tax jurisdictions where platforms, user-advertisers, and user- consumers are located. Neither the international nor multistate tax rules were designed with this structure in mind. While several countries in the Global South have begun implementing DSTs, aside from Colombia, no other Latin American country is actively pursuing the taxation of the digital economy. Nepal introduced a DST in July 2022 at a rate of 2% of the transaction value of digital services. Similarly, India introduced a 6% equalization levy in 2016. Pakistan introduced a fee for offshore digital services with a 5% levy on the gross amount. Research indicates that Sri Lanka’s proposed digital services tax is likely to generate four times as much revenue as they could hope for under Pillar One and that Sri Lanka would lose revenues through OECD implementation in several scenarios. This policy brief articulates the G20’s enabling role in the immediate roll out of unilateral DSTs in the Global South at least until Pillar 1 comes into effect.