Tax can be an incentive-Voluntary tax transparency framework can attract capital, generate employment

Source: The post is based on the article “Tax can be an incentive-Voluntary tax transparency framework can attract capital, generate employment” published in The Indian express on 24th July 2023.

Syllabus: GS3- Indian economy – mobilization of resources

News: In this article author discusses the need for India to adopt a voluntary tax transparency framework to support its economic growth. This transparency can attract global investors, create jobs, and align with environmental, social, and governance (ESG) goals. The younger generation values ESG, making transparency crucial for businesses.

How can tax transparency benefit India’s economy?

Tax transparency can offer multiple benefits to India’s economy:

Investor Attraction: Transparent tax strategies can draw in global investors who value responsible tax behavior, amplifying capital inflow.

Economic Growth: By attracting more investment, especially in sectors like infrastructure and green energy, there can be a significant economic expansion.

Job Opportunities: Increased capital from transparency can lead to job creation, benefiting the wider population.

Improved ESG Scores: Companies disclosing their tax approaches can enhance their Environmental, Social, and Governance (ESG) scores. High ESG scores can attract even more global investors.

Healthy Corporate Competition: A voluntary transparency framework can spur companies to willingly disclose their tax practices, promoting responsible behavior.

Alignment with Global Practices: Following global transparency norms, like the tax transparency report (TTR), strengthens India’s position in the international business community.

What are the global practices around tax transparency?

Tax Transparency Report (TTR): Many companies globally use TTR to share their tax strategies annually.

OECD’s BEPS Project: The Organization for Economic Co-operation and Development (OECD) started the Base Erosion and Profit Shifting (BEPS) project. This aims to fix gaps in international tax rules.

ESG Values: Globally, investors take a company’s Environmental, Social, and Governance (ESG) scores seriously, which includes tax transparency.

What should be done?

Adopt Tax Transparency: Introduce a voluntary framework for companies to disclose their tax strategies, promoting responsible behavior.

Link to ESG: Connect tax transparency to Environmental, Social, and Governance (ESG) scores. Higher scores can attract more investors.

Introduce Reporting Systems: Emulate the global Tax Transparency Report (TTR) model for consistent reporting.

Support Ease of Business: Ensure the transparency framework does not hinder business operations.

Promote Green Practices: Encourage businesses to report environmental taxes, pushing for eco-friendly measures.