Global investors need Indian tax carrots and not uncertainty sticks

Source: The post is based on the article “Global investors need Indian tax carrots and not uncertainty sticks” published in Mint on 12^th May 2023.

Syllabus: GS 3 – Economy

Relevance: About global minimum tax rate

News: Multinational companies often try to minimize their tax burden by incorporating themselves in tax havens. The article explains the steps taken globally to address the issue of tax evasion by MNCs.

What steps have been taken by countries to address the tax evasion by MNCs?

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How has global minimum tax rate evolved?

Read Here: Global Minimum Corporate Tax and India – Explained and India needs to be cautious before joining Global Minimum Tax rate

Moreover, public scrutiny, enabled by increased tax transparency obligations, is putting pressure on companies to act with more social responsibility as part of their ESG obligations.

How is India taking steps towards imposing a global minimum tax rate and how will it benefit India?

India has set an international tax agenda in its current G20 presidency.

Although many countries have implemented the 15% global minimum tax, the negotiations on a fairer distribution of taxing rights (Pillar 1) are expected to conclude under the Indian G20 presidency.

Pillar 1 will allocate more taxing rights to market jurisdictions such as India. It will also provide for more tax certainty to businesses.

Tax certainty is about being guaranteed a fair and predictable tax treatment based on the rule of law. It is also about companies being guaranteed a proper resolution of tax disputes, including through compulsory mechanisms.

What is the way ahead for India?

India despite having brightest tax experts in the world, suffers from a negative reputation for the practices of its tax administration.

There has been progress to improve international dispute resolution. However, a lot remains to be done to foster growth and investments.

Moreover, implementing Pillar 2 of the global tax framework will remove the tool of tax incentives and help in attracting investments in India.

However, India does not need tax incentives to attract investments because it is the largest fast-growing market in the world, rather it needs tax certainty. India should make tax certainty its top priority.