The G-20 has therefore, endorsed a two-pronged solution to ease sovereign woes, which is a result of long-standing tax discussions at the Organisation for Economic Cooperation and Development (OECD). The first pillar is to amend profit allocation and nexus rules ...
Various socialist and mercantilist groups attribute a worrying and real rise in economic inequity between and within nations, to exploitative behaviour by transnational companies, such as rerouting of profits to tax havens. This problem statement is perfectly suited to the discursive economic agenda of the Group of 20 (‘G20’), which India is gearing up to preside over from December 2022.
There is indeed merit to the contention that countries like India are denied their fair share of corporate tax revenues from transnational companies. This is because the world has seen a ‘race to the bottom’ in corporate taxation since the 1980s, which has led to rampant cross-border tax arbitrage. To wit, corporate taxes have fallen from an average of 50 per cent in 1980 to around 24 per cent in 2020. This is an issue that G20 Finance Ministers will discuss at their next meeting in October, where India must play a proactive role in the light of its upcoming presidency.
Public policy on corporate taxes has long wrangled to find the optimal mix of tax rates and a taxable base. Lowering tax rates, as tax havens like Ireland and Singapore have done, has two effects – an ‘income effect’ that depresses tax revenues due to a lower rate, and a ‘substitution effect’ that improves competitiveness in attracting capital flows.
This story is from the October 31, 2021 edition of Businessworld.
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This story is from the October 31, 2021 edition of Businessworld.
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