India has consistently advocated for the dissolution of the World Trade Organization's moratorium that prohibits customs duties on digital goods. This policy, according to Indian officials, not only drains crucial revenue from developing economies like India but also undermines the sovereign right to impose duties for protecting domestic industries.
The Silent Countdown to March 2026
Unlike previous discussions, there is currently a subtle silence surrounding the fate of this moratorium, which is scheduled to expire in March 2026 unless extended during the upcoming 14th Ministerial Conference (MC 14) in Cameroon from 26 to 29 March. The forthcoming budget may reveal whether India is progressing towards levying duties on digital goods by potentially adding a dedicated Chapter 99 to the existing customs tariff.
Background: The WTO Moratorium on Electronic Transmissions
With the rise of the internet and e-commerce in the global economy, WTO members adopted a declaration on Global Electronic Commerce at the second Ministerial Conference in May 1998. Ministers from member countries agreed to continue the practice of not imposing customs duties on electronic transmissions, establishing what is now known as the Moratorium on Electronic Transmissions.
This moratorium ensured that digital goods such as music, software, e-books, video games, and movies, which were gaining popularity in the late 1990s and beyond, had easy and duty-free access to all WTO members and their consumers. In recent years, India, alongside other nations including South Africa and Indonesia, has consistently opposed indefinite extensions of this moratorium.
The opposition is based on concerns over annual revenue losses and reduced protection for domestic industries. At the 13th WTO Ministerial Conference, India reaffirmed its demand to recall the moratorium, arguing that it restricts the flexibility of developing economies. It has been repeatedly emphasized that the moratorium disproportionately benefits developed members like the United States, the European Union, and China.
Information Technology Agreement vs. E-Commerce Moratorium
India became a signatory to the Information Technology Agreement in 1997, committing to eliminate duties on Information Technology goods to ensure the availability of a wide range of technologically advanced products to Indian consumers. However, over the years, this agreement has had an adverse impact on India's domestic industry.
The country became heavily dependent on imported IT hardware, with limited room for the growth of domestic industries due to intense competition from large conglomerates in the US and EU, followed by China. The e-commerce moratorium, which prevents duties on digital goods, has had a similar effect.
While precise data on revenue loss from the e-commerce moratorium is scarce, the explosive growth in digital trade suggests significant potential duty revenue loss. This revenue could otherwise be utilized for various developmental purposes. Moreover, the moratorium removes the sovereign right to adjust duties to protect infant industries, thereby hindering the growth of domestic sectors.
Will India Introduce Chapter 99 in the Upcoming Budget?
Although the moratorium currently bars India from levying duties on the digital transmission of goods, given India's longstanding opposition, the country may choose to establish a framework for such duties. In preparation, the Finance Minister might propose introducing a new Chapter 99 in the upcoming budget.
This chapter would diverge from the usual WTO Harmonized System Nomenclature practice to cover digital goods, initially keeping duty rates at zero. Chapter 99 would provide necessary classification for digital goods, which is currently unavailable. Additionally, it could serve as a guidance note for the industry, distinguishing between digital goods and services and clarifying what may fall under customs duty once the moratorium ends.
Currently, there is significant ambiguity regarding what qualifies as digital goods versus digital services. For instance, streaming a movie over a platform raises questions about whether it constitutes the import of goods or services. The government would need to establish clear guidelines to differentiate digital goods from services and clarify that only goods attract customs duty. Simultaneously, it must avoid dual GST levies—one for the import of goods and another under the OIDAR GST levy for the import of services, as might occur with e-books.
Feasibility of Tracking and Levying Duties on Digital Transmissions
Unlike physical imports, digital goods do not pass through ports or require shipping documentation. Critics argue that even if India proceeds with levying customs duties on digital goods, tracking intangible imports is not feasible. However, the OIDAR regulations under GST demonstrate how such transactions can be monitored and taxed in practice.
While there may be instances of evasion requiring intervention, a system similar to OIDAR, based on self-assessment by suppliers of goods, could function effectively. India could implement simple registration norms for overseas suppliers, with duty payments due on a periodic basis rather than for each transaction, as is the case with physical imports.
Conclusion: Strategic Implications for India
By introducing Chapter 99, India can leverage it as a bargaining tool in broader trade negotiations, securing concessions on market access, technology transfer, and digital sovereignty. This move would help shape India's digital market and represents a first step toward the country's longstanding demand for levying customs duties on digital transmissions.
