Sign In
Learn bits
World Affairs
Mahesh

21/12/22 22:01 PM IST

Global Tax

In News
  • European Union members have agreed to implement a minimum tax rate of 15% on big businesses in accordance with Pillar 2 of the global tax agreement framed by the Organisation for Economic Cooperation and Development (OECD) in 2021.
Global Minimum Tax Rate
  • The global minimum corporate tax rate, or simply the global minimum tax, is a minimum rate of tax on corporate income internationally agreed upon and accepted by individual jurisdictions. Each country would be eligible for a share of revenue generated by the tax.
  • The aim is to reduce tax competition between countries and discourage multinational corporations (MNC) from profit shifting to achieve tax avoidance.
  • 136 countries had agreed on a plan to redistribute tax rights across jurisdictions and enforce a minimum tax rate of 15% on large multinational corporations.
  • It is estimated that the minimum tax rate would boost global tax revenues by $150 billion annually.
Need for such a tax
  • Corporate tax rates across the world have been dropping over the last few decades as a result of competition between governments to spur economic growth through greater private investments.
  • Global corporate tax rates have fallen from over 40% in the 1980s to under 25% in 2020, due to global tax competition that was kick-started by former U.S. President Ronald Reagan and former British Prime Minister Margaret Thatcher in the 1980s.
  • The OECD’s tax plan tries to put an end to this “race to the bottom” which has made it harder for governments to shore up the revenues required to fund their rising spending budgets. The minimum tax proposal is particularly relevant at a time when the fiscal state of governments across the world has deteriorated as seen in the worsening of public debt metrics.
  • The global minimum tax is expected to generate around $150 billion in new global tax revenues annually. The cumulative impact is that tax havens would no longer exist since taxes avoided in the haven would be collected at home.
  • This means that if a company’s earnings go untaxed or lightly taxed in one of the tax havens, their home country would impose a top-up tax that would bring the effective rate to 15%.
Impact on India
  • India loses about $10 billion to tax abuse through profit shifting every year — the second-largest tax revenue loss in Asia. India had already taken measures like equalisation levy, SEP rules, and the latest digital services tax to minimise tax evasion by foreign corporates.
  • India had also gotten into Tax Information Exchange Agreements (TIEAs) with tax havens for access to information on tax enforcement. The enactment of GMCT requires India to take down these policies and switch to the proposed two-pillar international norms.
  • Norms to put an end to tax evasion by corporates have been sought out by governments across the world. The GMCT has now given fresh hopes of fighting tax evasion globally. 
Source- Indian Express

More Related Current Affairs View All

05 Mar

First-ever comprehensive survey of India’s river dolphins

'Prime Minister Narendra Modi released the results of the first-ever comprehensive population estimation of riverine dolphins – Gangetic and Indus dolphins – done in In

Read More

05 Mar

Arresting women at night

'The Madurai Bench of the Madras High Court in Deepa versus S. Vijayalakshmi and Others ruled that the legal provision in the Bharatiya Nagarik Suraksha Sanhita (BNSS), 2023, which

Read More

05 Mar

Digital Personal Data Protection Act, 2023

'The Ministry of Electronics and Information Technology (MeitY) looking to wrap up public consultations on the draft Rules for the Digital Personal Data Protection Act, 2023 by Mar

Read More

India’s First Ai-Driven Magazine Generator

Generate Your Custom Current Affairs Magazine using our AI in just 3 steps