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Aparna
Aparna

Aparna

  • Lucknow, India
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Asked: 2021-10-13T18:41:58+05:30 In:

What is France to levy digital tax despite US decision to walk out of talks?

What is France to levy digital tax despite US decision to walk out of talks?

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      Context:

      Due to the economic devastation caused by COVID-19 some economists propose that non-repayable money transfer from the central bank to the government, which is ‘helicopter money’.

      Helicopter Money

      • Helicopter money is the term used for a large sum of new money that is printed and distributed among the public, to stimulate the economy during a recession or when interest rates fall to zero.
      • It is also referred to as a helicopter drop, in reference to a helicopter scattering supplies from the sky.
      • Coined by the American economist Milton Friedman in 1969, helicopter money refers to a last resort type of monetary stimulus strategy to spur infl ation and economic output.
      • It includes printing large sums of money and distributing it to the public so that people can spend more and boost the economy.
      • It also requires both monetary and fi scal policies to be carried out together, meaning central banks and governments cooperating with each other.

      Significance of Helicopter Money:

      • No debt: Helicopter money does not rely on increased borrowing to fuel the economy, which means that it does not create more debt and interest rates can remain unchanged.
      • Economic growth: It boosts spending and economic growth more effectively as it increases aggregate demand – the demand for goods and services – immediately.

      Disadvantages of helicopter money:

      • Not reversible: Unlike quantitative easing, using helicopter money as a tactic is not reversible. It is not a feasible solution to revive the economy.
      • No change on interest rate: A country’s central bank sets its interest rates to reach economic growth targets. However, a helicopter drop means that a central bank cannot use interest rates to recover any costs, because the money is not linked to a borrowed asset (loan).
      • Over-inflation: Instead, the money is given directly to the public. This may lead to over-inflation and cause damage to the central bank’s financials.
      • Significant devaluation of currency: It could lead to a significant devaluation of the currency on the foreign exchange market.
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      Context:

      France has decided to go ahead with plans to tax big digital companies this year.

      About:

      • The French government’s “GAFA” tax” named after Google, Apple, Facebook, Amazon, is being introduced to combat attempts by the firms to avoid paying what is considered a “fair share” of taxes in the country.
      • The purpose of this tax is to achieve a fairer and more efficient tax system, which taxes value where it exists, i.e. in the data, in order to finance public services, schools, nurseries and hospitals.
      • It is a proposed digital tax to be levied on large technology and internet companies.
      • France, Britain, Italy and Spain have already sent a reply expressing their desire to agree on “a fair digital tax at the level of the OECD as quickly as possible.

      Digital Taxation in India

      • Equalization Levy: It is a tax aimed at foreign digital companies. It has been in place since 2016 and levied a 6% tax payable on gross revenues from online advertising services.
        • The new amendment, effective from April 1, 2020, essentially expands the its scope from online advertising to nearly all online commerce activities done in India by businesses that do not have taxable presence in India through applicability of 2% on its revenues.
      • SEP: India also introduced the concept of “Significant Economic Presence” (SEP) for the purposes of corporate income tax, which expanded to include the following:
        • Advertisement which targets a customer residing in India or who accesses advertisement through internet protocol (IP) address located in India.
        • Sale of data collected from a person residing in India or who uses an IP address located in India.
        • Sale of goods/services using data collected from a person residing in India or who uses IP address located in India.
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