What the G7 corporate tax deal means for India

  • Category
    Economy
  • Published
    14th Jun, 2021

Advanced economies making up the G7 grouping have reached a “historic” deal on taxing multinational companies and to ratify a global minimum corporate tax rate to counter the possibility of countries undercutting each other to attract investments.

Context

Advanced economies making up the G7 grouping have reached a “historic” deal on taxing multinational companies and to ratify a global minimum corporate tax rate to counter the possibility of countries undercutting each other to attract investments.

About

About the agreement

  • The first decision is to force multinationals to pay taxes where they operate.
  • The second decision in the agreement commits states to a global minimum corporate tax rate of 15% to avoid countries undercutting each other.
  • The agreement will now be discussed in detail at a meeting of G20 financial ministers and central bank governors in July.

Challenges and problems

  • Getting all major nations on the same page due to right of the sovereign to decide the nation’s tax policy.
  • A global minimum rate would essentially take away a tool that countries use to push policies that suit them.
  • Also, a global minimum tax rate will do little to tackle tax evasion.

Where does India stand?

  • India already had announced a sharp cut in corporate taxes for domestic companies to 22% and for new domestic manufacturing companies to 15%, broadly at par with the average 23% rate in Asian countries.
  • Also, existing domestic companies opting for the concessional taxation regime will not be required to pay any Minimum Alternate Tax.
  • The effective tax rate, inclusive of surcharge and cess, for Indian domestic companies is around 25.17%.
  • The economic division will look into the pros and cons of the new proposal and then will decide.

About G7

  • The G7 (Group of Seven) is an organisation made up of the world's seven largest so-called advanced economies. They are Canada, France, Germany, Italy, Japan, the UK and the United States.
  • Russia joined in 1998, creating the "G8", but was excluded in 2014 for its takeover of Crimea.
  • China has never been a member, despite its large economy, as its relatively low level of wealth per person is not seen as an advanced economy in the way the G7 members are.
  • Representatives from the European Union are usually present and India, South Korea and Australia have been invited this year.
  • The UK holds the G7 presidency for 2021
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