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.
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