India and Australia on Saturday signed an Economic and Trade Cooperation Agreement (ECTA) which aims to nearly double bilateral trade over the next five years to $45-50 billion from around $27 billion currently. It also relaxes the standards of collaboration and sharing of talents between the two nations.
Under the provisions of the Double Taxation Avoidance Agreement, Australia charged a “royalty” tax to Indian IT companies for offshore work carried out in India, although the same income was also taxed in India. India. This has resulted in nearly $1 billion in losses for the $220 billion IT industry over the past 10 years.
IT industry captains applauded the decision to end double taxation.
“Many thanks to the Indian government and Nasscom for solving the critical and long-standing issue of Australian taxation. Perseverance paid off!” Wipro Chairman Rishad Premji said in a Twitter post on Sunday.
Many thanks to the Indian government and Nasscom for resolving the long-standing and critical Australian tax issue… https://t.co/dPXyYZQWvz
— Rishad Premji (@RishadPremji) 1648970593000
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Nasscom President Debjani Ghosh tweeted: “The mobility of highly skilled talent is the most critical success imperative of a thriving global digital economy. Super happy and proud to see India and Australia leading the way!
The mobility of highly skilled talent is the most critical success imperative of a thriving global digital economy. Great s… https://t.co/DYQGibn9Dk
— debjani ghosh (@debjani_ghosh_) 1648988872000
According to the IT industry body’s estimates, the Indian IT sector’s total annual revenue from the Australian market is around $2-3 billion. It is estimated that around 50% of this activity is served by offshoring to India. The tax impact on income from offshore services levied at 15% equates to around $225 million per annum (around Rs 1,507 crore).
From FY 2011-12 to date, the cumulative impact has been estimated at over $1 billion for India.
“Furthermore, recognition of talent mobility with 4-year temporary work permits, spouse and dependent visas will enable businesses in both countries to leverage digital talent skills, develop digital capabilities scale and collaborate through innovative startups,” Nasscom said.
The industry association said it was confident Australia would soon change its domestic laws to reflect the deal.
“It’s a big relief for Indian IT companies like Tech Mahindra, Wipro, Infosys that operate in Australia. Subsequently, unlike last time, even the taxman cannot appeal to the federal courts because the whole national laws is being amended, so the department will lose ground in taxing Indian IT companies,” said Prabhakar KS, Founder and Managing Director of Shree Tax Chambers.
Tech Mahindra lost its appeal against the tax levy in an Australian court in 2018.
Australia has agreed to amend its domestic tax laws to end taxation of offshore income from Indian companies providing technical services to the country, said Piyush Goyal, minister for trade and industry.