CURRENT AFFAIRS FOR UPSC IAS

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.

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.