Introduction: What “No Internet Tax” actually meant in this context
The phrase “no internet tax” sounds broader than it was. In the United States, the federal government never pushed to keep the internet free from taxation altogether. Instead, the federal stance that developed from the late 1990s through 2016 was narrower and more precise. It was aimed at stopping state and local governments from imposing taxes on internet access and from imposing multiple or discriminatory taxes on electronic commerce. It was not a blanket ban on ordinary sales tax obligations attached to online purchases.
This distinction matters because the movement produced two different policy tracks. One track was about to protecting the internet itself, especially access to the network, from being treated like a new utility to be taxed separately. The other track, which gathered force later, dealt with whether states should be able to collect ordinary sales and use tax from remote sellers. Quill Corp. v. North Dakota, decided in 1992, had already limited a state’s power to force many out-of-state sellers to collect use tax unless they had a physical presence within the state. That decision created the background for later fights over online retail.
So the story from 1997 to 2016 is not one long anti-tax crusade in the abstract. It is a more specific political project. Washington tried to keep internet access and online commerce from being hit with special, overlapping, or discriminatory taxes at the state and local level. By 2016, that project had succeeded in making the internet-access moratorium permanent, but it did not settle the wider online sales-tax problem.
Brief summary
From 1997 to 2016, the U.S. “no internet tax” push evolved from an early-internet growth doctrine into a permanent but narrower federal rule.
It began in the Clinton White House as part of a larger effort to protect electronic commerce from fragmented taxation and tariff burdens. Congress turned that instinct into law in 1998 by creating a moratorium on taxes on internet access and on multiple or discriminatory taxes on electronic commerce. Then, over almost two decades, Congress repeatedly extended, redefined, and refined that moratorium until finally making it permanent in 2016.
The result was significant but limited. The movement succeeded in shielding internet access from state and local taxation and in protecting e-commerce from internet-specific discriminatory tax treatment. It did not create a world in which online retail was permanently free of ordinary sales-tax collection. That second fight kept running on a separate track and was still unresolved when the moratorium became permanent.
So the cleanest summary is this: the United States did not adopt a permanent “no tax on online commerce” rule. It adopted a permanent “no special tax on internet access, and no multiple or discriminatory tax on electronic commerce” rule. That narrower result was enough to matter a great deal.
This was not just important from a consumer standpoint, it was also important from an economic standpoint as an internet tax could have affected the adaptation of the internet and all the economic opportunities that it has offered.
That has been highlighted in recent days after a proposed VAT increase on internet services caused the Hong Kong exchange to drop considerably.
“The recent sell-off is driven by concerns over a possible VAT increase on internet services, online gaming and other online transactions.” — Qi Wang, investment strategist at UOB Kay Hian in Euro Magazine February 5. 2026
“An Internet tax could have delayed internet adaption and made transnational services such as international online brokers a lot harder to operate successfylly” — William Berg for BrokerListings.com
1997 to 1998: The idea becomes federal policy
The Clinton administration’s 1997 framework
The federal push started as a policy mood before it became a statute. On July 1, 1997, President Bill Clinton approved and released “A Framework for Global Electronic Commerce”. The White House described it as the administration’s vision for the emerging electronic marketplace and laid out principles for how government should approach online commerce. In the related presidential message and directive, Clinton made clear that the administration wanted a light-touch approach and specifically directed the U.S. government to pursue international agreement that products and services delivered across the internet would not be subject to tariffs. A tariff is a charge imposed on goods crossing international borders, and at the time there was genuine uncertainty about how digital products transmitted over the internet should be treated. Policymakers around the world were unsure whether something like downloaded software, music, or other digital content might be classified as an imported good, which could make it subject to customs duties, and the Clinton administration wanted to prevent a tariff outcome by promoting a global agreement that electronic transmissions should not be subject to tariffs. This was part of the broader “light-touch” approach to regulating the emerging digital economy, intended to support growth and innovation in online commerce. It’s important to distinguish tariffs from domestic taxes. Tariffs apply to cross-border trade, while taxes such as sales tax or value-added tax are imposed within a country on consumption. The 1997 “ A Framework for Global Electronic Commerce” focused specifically on avoiding tariffs on digital transactions, leaving the question of domestic taxation to be addressed separately by individual governments.
The Clinton administration’s basic view was that the internet was unusually vulnerable to layered and inconsistent taxation because online traffic could touch many jurisdictions at once. That made it different from a traditional local utility. The policy instinct, therefore, was to protect the early commercial internet from the kind of fragmented state, local, and international tax treatment that could slow adoption just as e-commerce was beginning to take shape.
For investors and businesses at the time, “A Framework for Global Electronic Commerce” mattered a lot because it signaled that the U.S. federal government intended to treat internet growth as a national priority rather than see the internet a source of direct new revenue through tariffs or special taxes. In the late 1990s, this was not a small statement. The internet was still commercially young enough that U.S. federal policy could plausibly affect its adoption curve.
Congress turns a policy mood into law in 1998
Congress moved from a general framework to statute in 1998, when “The Internet Tax Freedom Act” was enacted as Title XI of Public Law 105-277 and signed on October 21, 1998. The law imposed a moratorium beginning October 1, 1998 and ending three years after enactment. During that period, state and local governments were barred from imposing taxes on internet access and from imposing multiple or discriminatory taxes on electronic commerce, with certain grandfathered exceptions for taxes on internet access that had already been generally imposed and actually enforced before October 1, 1998.
That original law is the real starting point of the “no internet tax” movement in legal terms. Its language was not anti-tax in a broad libertarian sense. Instead, it was anti-fragmentation. Congress was trying to stop states and localities from creating a patchwork in which the same online transaction could face overlapping taxes, or where internet access itself could be singled out for special levies. They saw it as important to allow a a national digital market to form without state and local tax policies fracturing it.
The statute also created the Advisory Commission on Electronic Commerce, which was tasked with studying taxation and tariff treatment of internet transactions and reporting back to Congress.
“The Internet Tax Freedom Act” was politically significant for two reasons. Firstly, it showed that Congress had accepted the argument that the internet needed temporary protection while commercial norms were still forming. Secondly, the Act treated internet access as something different from ordinary retail or utility transactions, and that difference would become the fault line in later debates.
It should be noted that critics of “The Internet Tax Freedom Act” were not always defending “internet taxes” in the crude sense. Many were instead defending state autonomy and future sales-tax authority.
The nitty-gritty details about how the “Internet Tax Freedom Act” moved from policy proposal to actual law in 1998
The Senate passed the Internet Tax Freedom Act (as part of S. 442, later included in Public Law 105 277) with overwhelming bipartisan support. The final Senate roll call vote on passage was 96 yeas to 2 nays (with a couple of members not voting). This wide margin shows that both Republican and Democratic senators largely agreed on the measure.
Here’s the detailed roll call information from the Senate vote on the Internet Tax Freedom Act (S. 442), which helped form Title XI of Public Law 105 277 in 1998:
- The Senate passed the bill on October 8, 1998 by a vote of 96 yeas to 2 nays.
- 2 Senators voted against it: Sen. Dale Bumpers (D–Arkansas) and Sen. Slade Gorton (R–Washington)
- 2 Senators did not vote (absent): Senator John Glenn (D–Ohio) and Senator Ernest “Fritz” Hollings (D–South Carolina).
A companion House bill (H.R. 4105) passed the House unanimously earlier in 1998 before the Senate action. After the Senate passage, the Internet Tax Freedom Act provisions were added to the omnibus appropriations bill (P.L. 105 277), which also passed both chambers, and was signed into law on October 21, 1998. Because this bill had been added to an omnibus appropriations act and passed in that form as law, the roll call in the final enacted version isn’t recorded as a direct Senate roll call vote on a standalone Internet Tax Freedom Act.
The Internet Tax Freedom Act was not controversial in final votes. It passed by large margins and with bipartisan backing, reflecting broad agreement in Congress that the emerging internet should be protected from new state and local taxes on internet access and discriminatory taxes on online commerce.
Why did Sen. Dale Bumpers (D–Arkansas) and Sen. Slade Gorton (R–Washington) vote nay?
Sen. Bumber´s nay vote was not in opposition to the broad idea of internet commerce, but rather to specific aspects of how the bill was written, including how narrowly it treated tax authority, and whether broader tax fairness or state authority issues were properly considered.
Sen. Bumber´s offered amendments during the debate aimed at broadening the bill’s focus beyond just a moratorium on internet taxes to include other forms of state and local taxation that might disadvantage traditional commerce, e.g. requiring sellers to disclose potential tax obligations or studying all remote sales tax issues. Bumpers was concerned about limiting broader tax policy considerations and possibly missing issues affecting remote commerce generally. In short, he disagreed with the narrowness of the bill and wanted it to include other tax-related concerns.
Public records do not include a detailed floor speech or anything else from Sen. Gorton explaining his nay vote.
1999 to 2001
The Advisory Commission on Electronic Commerce (1999-2000)
The Advisory Commission on Electronic Commerce was a temporary federal body created by the Internet Tax Freedom Act of 1998. Its purpose was to study how internet transactions should be treated for tax and trade purposes, including issues like sales taxes on online purchases and the potential for tariffs on digital goods and services.
The commission had 19 members drawn from different groups, including members of Congress, state and local government officials, and representatives from the technology and business sectors. This mix was intended to reflect both government interests in tax revenue and the private sector’s interest in maintaining a favorable environment for e-commerce.
The Advisory Commission on Electronic Commerce began work in 1999. Federal Register notices from that year show the commission inviting proposals and comments on state and local taxation of internet transactions and electronic commerce. The commission existed because Congress did not yet know what permanent policy should look like. The internet was expanding quickly, but the state and local tax implications were still politically unsettled.
The Commission held hearings, gathered testimony, and analyzed the potential economic impact of taxing online activity. A key concern was whether imposing new taxes on internet commerce might slow its growth or discourage innovation.
In 2000, the commission delivered its report to Congress. It did not reach complete agreement on all issues, but a majority of members supported extending the existing ban on new internet-specific taxes and maintaining the general approach of not applying tariffs to digital transactions.
The commission served in an advisory role. While it did not create law, its findings influenced early policy decisions.
From moratorium to policy debate (1999-2001)
The debate did not end just because the moratorium went into effect in 1998. Instead, the discussion continued, with one side arguing that the internet was still commercially fragile and could be damaged by fragmented taxation, while the other side argued that exempting online activity too aggressively would distort competition, weaken state revenues, and push tax burdens toward brick-and-mortar commerce. Those tensions ran through the commission period and never fully disappeared.
Congress answered the immediate problem in 2001 with another temporary move. Public Law 107-75, the “Internet Tax Nondiscrimination Act”, extended the moratorium through November 1, 2003. The title itself is revealing. By 2001, the rhetorical emphasis had shifted a little from “freedom” to “nondiscrimination.” That captured the actual legal logic more accurately. Congress was not claiming all tax connected to online commerce was forbidden. It was saying that internet access and e-commerce should not face taxes that were special, layered, or discriminatory because of the medium.
The result of the 1999-2001 period was that the internet-tax question survived its infancy. The policy did not sunset quickly, and Congress made clear that the moratorium would continue past the dot-com crash. This is more important than it first appears. If the 1998 law had been purely a speculative-growth gesture, the collapse of the dot-com bubble might have weakened it. Instead, Congress extended it, which showed the policy had moved beyond bubble-era optimism and into the realm of established federal doctrine.
2002 to 2004: The debate shifts from principle to definitions
By the early 2000s, the main fight was no longer just whether internet access should be protected, it was also about how to define internet access in a world where technology was changing. That sounds technical, but it was politically important. As broadband technologies developed, especially DSL and other bundled telecommunications services, states and localities began arguing that some parts of internet service were really taxable telecommunications rather than protected internet access. Once that argument entered the system, the original 1998 wording looked too rough. A legal distinction that had been workable in the dial-up era became harder to administer when internet service and telecommunications infrastructure were intertwined.
Congress responded in 2004 with Public Law 108-435, also called “The Internet Tax Nondiscrimination Act”. The 2004 law revised definitions, clarified the meaning of “tax on internet access,” and inserted a more detailed grandfathering regime for states that had taxed internet access. It also set termination dates for those grandfather protections, with the general grandfather protection not applying after November 1, 2007, and a narrower telecommunications-service exception not applying after November 1, 2006.
This stage matters because it showed the “no internet tax” movement becoming less ideological and more legalistic. Congress was no longer simply shielding a young internet from local taxes in broad strokes; it was now drawing lines around what counted as internet access, which taxes that were grandfathered, and how long those exceptions should survive.
The 2004 result preserved the moratorium, but also acknowledged that states had existing revenue arrangements and legacy taxes that could not be switched off instantly without consequence. In other words, Congress was still committed to the anti-discrimination principle, but it was no longer pretending there were no revenue tradeoffs. That balance would become even more visible in the next round of extensions.
2005 to 2007: The temporary law keeps getting older
By 2005 and 2006, the original justification for the law was starting to look dated. The internet was no longer a commercial infant, as it was becoming mainstream infrastructure, and this changed the discussion. Critics could now plausibly argue that a temporary federal moratorium passed in 1998 to help a young technology had become an entrenched constraint on state and local revenue. Congressional hearing material from 2007 reflects that tension directly. Witnesses and lawmakers acknowledged that the internet of 2007 was very different from the internet of 1998, and some argued that any extension should remain temporary rather than automatic.
Congress nevertheless extended the policy again. Public Law 110-108, the “Internet Tax Freedom Act Amendments Act of 2007”, pushed the moratorium out further and adjusted definitions and grandfather rules. House debate recorded in the Congressional Record stated that the bill extended the moratorium on state and local taxes on internet access for four years, until November 1, 2011. The hearing and statutory materials also show Congress refining how “internet access” was defined and dealing further with grandfather provisions and business-tax exceptions.
The 2007 law is important because it shows the movement aging into a kind of default federal posture. Congress no longer treated the internet as novel in the cultural sense, but it still treated protection from internet-access taxation as economically and politically desirable. The result was a strange hybrid: a temporary moratorium repeatedly extended for a mature technology because no one wanted to be the lawmaker seen as opening the door to “internet taxes.” That slogan had become politically toxic even if the underlying legal issue was narrower.
For investors, this period signaled that the policy had become sticky. Internet access was no longer merely exempt by grace of a short-lived experiment. It was developing into a long-term feature of the digital economy’s regulatory backdrop.
2008 to 2013: The contradiction years
From 2008 onward, Congress kept extending protection against internet access taxes and discriminatory e-commerce taxes, while at the same time more policymakers argued that states should be able to collect ordinary sales tax from remote sellers. Those are not actually the same issue, but they are easy to confuse. The “Internet Tax Freedom Act” protected access and blocked multiple or discriminatory taxation of e-commerce. It did not create a general tax exemption for goods sold online. Yet the public often treated “no internet tax” as if it meant internet purchases themselves were tax-free by right.
During this era, the Quill case of 1992 became increasingly important and was often referenced in the debates. The Quill Corporation was a mail-order office supply retailer who sold products to customers across the United States from outside certain states. In 1992, the Supreme Court held in Quill Corp. v. North Dakota that the state’s attempt to require an out-of-state mail-order seller with no physical presence in the state to collect use tax placed an unconstitutional burden on interstate commerce under the then-current rule. North Dakota had tried to require Quill to collect use tax from customers in the state, even though Quill had no physical presence there (no offices, warehouses, or employees).
The Supreme Court ruled that this requirement violated the Commerce Clause, because it placed too much burden on interstate commerce. The Court said a business must have a physical presence in a state before that state can require it to collect sales/use tax. This decision had created a rule: If a business had no physical presence in a state, it did not have to collect that state’s sales tax. And this
rule ended up shaping the early internet economy, because online retailers could often avoid collecting sales tax. Consumers technically still owed “use tax” but it was rarely enforced.
As e-commerce grew, states became increasingly frustrated with Quill’s physical-presence rule, and this lead to the Marketplace Fairness Act debates. In 2013, the Senate passed S. 743, the “Marketplace Fairness Act of 2013”, which sought to authorize states meeting simplification requirements to require collection of state and local sales and use taxes from remote sellers. The bill’s text is explicit and it aimed to restore states’ sovereign rights to enforce sales and use tax laws, not to impose a special internet tax.
During the 2008-2013 period, Congress wanted to preserve a moratorium on taxes on internet access and on multiple or discriminatory taxes on e-commerce, but at least some members of Congress also wanted to allow states to collect ordinary sales taxes on remote sales that happened to occur online. Those are different legal ideas, and understanding the difference is vital.
2014 to 2016: Deadline politics, then permanence
In 2014, the House moved toward a permanent solution. House Report 113-510 on the “Permanent Internet Tax Freedom Act” described the bill as one that would strike the existing end date and make the moratorium permanent. It also highlighted the political tradeoff directly: ending the grandfather protections would substantially reduce revenues for certain states, with the Congressional Budget Office estimating that the bill would cost states several hundred million dollars annually.
One of the proponents of a permanent ban was Rep. Bob Goodlatte (R Virginia), who sponsored the
legislation in the House to make the moratorium permanent. Rep. Goodlatte argued that the internet should not be taxed because it is a unique gateway to opportunity and should remain a space that encourages entrepreneurship and growth.
“The Internet is a meritocracy (…) It offers opportunity to anyone willing to invest time and effort. It is the greatest gateway to knowledge and engine of self improvement that has ever existed.” – Goodlatte, 2014 statement on the House floor.
Congress did not settle the issue cleanly in 2014. Instead, it lurched through short-term extensions. Public Law 113-164, signed September 19, 2014, extended the moratorium from its prior November 1, 2014 deadline to the date specified in the continuing resolution, which was December 11, 2014. Then Public Law 113-235, signed December 16, 2014, extended the moratorium through October 1, 2015. In 2015, Public Law 114-53 extended it again through December 11, 2015. Then Public Law 114-113 extended it through October 1, 2016.
That sequence says a lot about the politics. By 2014 and 2015, there was broad reluctance to let the moratorium expire, but not enough agreement on how to handle permanence and grandfathered state taxes. Congress was effectively saying the policy was too politically valuable to die and too fiscally complicated to settle quickly.
The final step came in 2016. Public Law 114-125, the “Trade Facilitation and Trade Enforcement Act” of 2015, was signed on February 24, 2016. As later summaries and the statutory notes make clear, this law made the moratorium on taxes on internet access permanent and temporarily extended the grandfather clause through June 30, 2020. The law ended the cycle of short-term extensions and transformed what had begun in 1998 as a temporary internet-era shield into a permanent rule of federal tax policy.
That was the decisive result of the movement. The “no internet tax” push, in its actual statutory form, won permanence in 2016. The expiration of the grandfather clause on June 30, 2020 meant that states that had previously been permitted to tax internet access (through the grandfather clause) could no longer do so after that date. It is important to keep in mind that this pertained to internet access taxation, not online purchase taxation.
“Internet access is finally tax free. Permanently.” — Sen. Ron Wyden, 2016 press release.
Sen. Ron Wyden was one of the key supporters of keeping internet access tax free, and he co-authored the original “Internet Tax Freedom Act”. When the permanent ban was approved in 2016, he said the law would ensure that Americans never have to pay taxes just to go online, and that keeping internet access tax free helps families, businesses, and innovation.
The results by 2016: What the movement achieved, and what it did not
By 2016, the movement had produced three durable outcomes.
First, it had permanently protected internet access from state and local taxation under the Internet Tax Freedom Act (ITFA) framework, subject to the law’s own definitions and temporary grandfather treatment. That mattered commercially because internet access had become a basic utility of modern commerce, education, and communication. Keeping it outside state and local internet-access taxation helped preserve a relatively uniform national access environment.
Second, the movement had permanently embedded the anti-discrimination principle. States could still tax ordinary commerce, but ITFA’s core rule against multiple or discriminatory taxes on electronic commerce remained in place. This gave online business a more predictable legal baseline and reduced the risk that states and localities would invent internet-specific tax structures simply because the medium was new or politically tempting.
Third, it did not solve the remote-sales-tax question. By 2016, Congress still had not enacted a full federal solution to the Quill problem, despite Senate passage of the Marketplace Fairness Act in 2013. So the “no internet tax” movement succeeded on internet access and anti-discrimination, but it left unresolved the broader question of when states could force remote online sellers to collect ordinary sales tax. That unresolved issue would later be changed not by Congress, but by the Supreme Court in South Dakota v. Wayfair in 2018, which overruled Quill’s physical-presence rule.
The United States did not end with a simple “no internet tax” regime. It ended with a split framework. Internet access and discriminatory e-commerce taxation were placed under a permanent federal moratorium, while ordinary sales-tax collection on remote online sales remained contested until after 2016. Investors and businesses therefore got certainty in one area and uncertainty in another.
South Dakota v. Wayfair (2018)
The Quill decision (1992) said that a state could not require a business to collect sales tax unless the business had a physical presence in the state. While the decision pertained to a mail-order company, it also meant that online sellers could sell to anyone in the U.S. without collecting sales tax in most states, giving them an advantage over local stores.
In 2016, South Dakota enacted its economic-nexus law, requiring remote sellers (even those without physical presence) to collect sales tax if they made more than $100,000 in sales or 200 transactions in the state. The online retailer Wayfair challenged the law.
The Supreme Court overturned Quill, ruling that physical presence is no longer required. Instead, states can require sales tax collection based on economic activity, e.g. sales volume or number of transactions. More precisely, the Supreme Court upheld the constitutionality of the economic nexus approach on June 21, 2018, overruling the old physical presence requirement from Quill.
This law was important for many retailers and many companies would have seen their stock value go down if the decision has been the opposite. Experts at Investing.co.uk highlights the importance of not burdening online companies unduly and thereby prevent them from doing business in certain areas. Doing so might hurt people living in rural areas where few other businesses operate.
Similar debates around the world and the results
Around the world, similar debates have occurred in other federal counties where sub-national governments have significant taxation powers. Here, we will look at a few examples.
Canada´s Digital Tax Debate and the Digital Services Tax
Just like the United States, Canada is a federal country where the provinces and the federal government have separate taxing authority. In June 2024, the Digital Services Tax (DST) was enacted, a federal tax targeting the revenue that digital firms earn from Canadian users even without a physical presence in Canada (for example, from online advertising or digital marketplaces). This tax was part of an effort to address the perception that global tech companies weren’t paying their “fair share” in the jurisdictions where they generate value.
The debate that proceeded the DST touch on similar themes as the one in the United States. Should revenue be taxed where value is created, where the seller is located, or where the buyer is located? Where are the boundaries between Federal vs. Provincial tax authority when it comes to online purchases? Can older tax rules be fruitfully applied to new forms of commerce, or do we need new rules to handle new issues?
It should be noted the Canadian debate was about corporate revenue tax and not about internet access taxation.
Australia´s Digital Tax Debate and the GST extension
Australia has a federal system with a national consumption tax called the Goods and Services Tax (GST), which applies to most goods and services at 10 % and is administered by the federal government but distributed to the states and territories.
In response to the growth of the digital economy, Australia extended its GST in 2017 to cover imported digital products and services sold to Australian consumers (such as streaming services, apps, and digital downloads). This meant overseas sellers above a certain turnover threshold now have to collect and remit GST as if they were domestic suppliers.
Australian policymakers, like their U.S. counterparts in the 1990s and 2000s, had to figure out if and how the existing tax systems (in Australia´s case, the GST) should cover digitally delivered products and services that didn’t exist when the tax was first designed. In both countries, debates included arguments about whether taxing digital transactions would hurt consumers, domestic businesses, or economic growth. Because GST revenue is ultimately shared with the states, reforms to include digital sales in the tax base involved coordination between the federal government and state/territory governments.
There has also been a discussion in Australia about whether to introduce a separate digital services tax (DST). This would be a tax that specifically targets revenues from digital platforms and services. Some proposals have been floated but have not been adopted, partly due to concerns about trade retaliation and the complexity of applying such a tax.
Market analytics on DayTrading.com have warned people about this digital service tax and recommend that they keep track of how the suggestion develops in the future. If the law is adopted, it might hurt many companies and drive down their stock value, especially since Australia already is a hard market for Digital platforms to work in due to age restrictions and other Australian rules
India´s Digital Tax Debate and the GST of 2017
India is a federal country with tax powers divided between the central government and state governments. Traditionally, the central government imposed customs duties, income tax, serice tax, excise duties, and other levies, while the respective state governments collected state VAT/sales tax. On July 1, 2017, the complex tax system was largely replaced by the Goods and Services Tax (GST), as this new tax replaced many of the older taxes at both central and state levels.
The rise of e-commerce and digital services in India had created challenges because digital transactions often crossed state and national borders, making it unclear who could tax them. At the same time, India was struggling with complexity in the overall tax system, so the digital tax debate became a part of a larger discussion about how the Indian tax system could be streamlined and improved.
Before the enactment of the GST in 2017, the central government introduced the Equalization Levy (2016). It targets foreign digital service providers (e.g. Google/Meta and Facebook) who earn revenue from Indian users but have no physical presence in India. Back in 2016, the tax rate was 6% on online advertising revenue. The goal was to create a more level playing field between foreign and domestic online companies.
When the GST was introduced in 2017, it applied (among other things) to digital services from both domestic and foreign firms. Since 2017, foreign digital sellers must register for GST in India if they sell to an Indian consumer, even if it is just one transaction. The foreign sellers are treated differently than the domestic Indian businesses, since the domestic businesses have registration thresholds in place based on annual turnover (₹20 lakh for services in most states).
Under the GST rules, certain electronically supplied services (called Online Information Database Access or Retrieval services, or OIDAR) are automatically taxable if supplied to non taxable online recipients in India, typically individual consumers. Because of this, foreign suppliers must register for GST before making any taxable supply in India. There’s no exemption based on how much they sell; the tax and the need to register applies from the first rupee of revenue.
After the introduction of the GST, the various Indian states rely on GST revenue. The GST is administered by the central government and money is sent to the states in the form of revenue sharing. The Equalization Levy is still in place, and remains purely central.