Global Corporate Tax and India: RSTV- Big Picture | Testbook.com

Rajya Sabha TV's programs offer a wealth of knowledge and insights that are extremely useful for UPSC aspirants. Today, we'll be discussing the implications of the Global Corporate Tax on India, a topic that holds relevance for various subjects under the UPSC syllabus like polity, governance, social issues, and economy.

Understanding Global Corporate Tax and Its Relevance for India

The key participants in this discussion are Dilip Chenoy, Secretary General of FICCI, and Subhomoy Bhattacharjee, Consulting Editor of The Business Standard.

Context:

The G7 Finance ministers have agreed in principle on a 15% global minimum corporate tax rate. This is aimed at preventing countries from lowering tax rates to attract investments.

Background:

The Pillar Two proposal by the Organisation for Economic Co-operation and Development (OECD) aims to address Base Erosion and Profit Shifting (BEPS) issues. BEPS refers to strategies used by multinational corporations to avoid tax by exploiting gaps in tax rules.

Significance:

• This move will help curb the practice of shifting revenues and profits to low tax jurisdictions.
• It marks an important step in the global economy where interconnectedness is the norm.
• The measure aims to end the race to the bottom in terms of tax rates and encourage countries to attract corporate investment through other means such as improving ease of doing business.
• As per the State of Tax Justice report of 2020, India loses over $10 billion in tax revenue due to rerouting of profits and revenues to low tax jurisdictions. This measure could help address this issue.
• The proposal aligns with India’s taxation scheme, which includes a reduction of corporate tax rates to 22%, a digital transaction tax for MNCs like Google, and double taxation avoidance agreements.
• It will discourage the creation of shell companies for tax evasion.

Challenges:

• Taxation is a sovereign right and this move might affect the financing of social service schemes.
• Low tax rates are a means of attracting investment for the development of a country.
• This could increase inequality and cause withdrawal of investment from smaller economies.
• Measures like Special Economic Zones (SEZs) might become redundant with a global minimum tax.
• The burden of increased taxation might fall on the public.
• Companies might still find ways to manipulate the quantum of profits for tax evasion.

Future perspectives:

• More clarity will be available once the functional details of the plan are unveiled.
• India needs to negotiate to balance its domestic concerns with this new form of taxation for maximum gains.
• Given that India is a major economic player with a lot of FDI, this measure could benefit the country in the long run.

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