Published: 10th Apr, 2021
America's treasury secretary Janet Yellen called on other countries to join Washington in setting a global minimum corporate tax rate for the Biden administration’s released plan to invest $2 trillion+ to revamp infra and boost clean energy products.
About
About the Global minimum corporate tax rate
- Non-binding: It is a nonbinding global minimum corporate tax.
- Recommended: A UN Panel, which is the High-Level Panel on International Financial Accountability, Transparency, and Integrity for Achieving the 2030 Agenda (FACTI), recommended a global minimum corporate tax of between 20% and 30%.
- Reduction in tax competition: This corporate tax could help in reducing the tax competition for the US and other nations.
- It is aimed to provide a level playing field and to create equitable growth.
- It will help in the reduction of the race of taxes and corporate tax base erosion.
- First of its kind: This is the first attempt of its kind attempted by the US as the world has not agreed to set a minimum level of the corporate tax rate.
Significance for America
- Hike in tax rates: The plan seeks to increase the US corporate tax rate to 28 percent from 21 percent. The ex-US President had reduced the corporate tax rates from 35 percent to 21 percent.
- Revitalization: It aims to revitalize the transportation infrastructure, water systems with other goals.
- An increase in the tax rate and other measures to prevent the offshoring of profits will fund it.
- More cooperation: It will support integration instead of isolationism.
- Tax evasion: The plan will stop firms from shifting profits to tax haven countries.
- Stability:The bill aims to stabilize tax systems to raise enough revenue to invest in public welfare.
Expected Negative impact on American Economy
- If not agreed as a global minimum rate, the US rates would be higher than other major economies which will make US address unattractive for firms.
- This would make foreign businesses overseas more profitable than US businesses.
- In G7 countries, the average rate is 24 percent and even lower in some countries.
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Other similar attempts
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Importance for other countries
- The International Monetary Fund has long favored the adoption of a global minimum tax on corporate profits as it would help in the reduction of current disparities in the national corporate tax rate.
- It would largely help in reducing tax shifting and tax avoidance.
- It would reduce the tax base on which governments could collect revenues for funding economic and social spending.
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