Effect of GMCTR on India

Effect of GMCTR on India

Tags:      Gig Economy     Economy     WTO     WTO Public Stockholding     MSP     Economic Growth     Masala Bond     Environmental Performance Index     Forecast of Economic Growth     Functions of the Finance Commission

The G7 finance ministers' principled agreement on GMCTR or, the Global Minimum Corporate Tax Rate or, global tax measures on June 5 is being hailed by many as historic. The two foundations of the agreement are:

(1) Compelling multinational corporations (MNCs) to pay taxes in the nations in which they operate, not just in those in which they have their headquarters; and

(2) Committing to a worldwide minimum corporate tax of at least 15% on a country-by-country basis. While the specifics of the agreement would be crucial, this plan will be brought up for debate at the G20 summit in Venice in July. According to a more comprehensive analysis, this may greatly increase tax revenues across major nations, including India.

GMCTR or, the Global Minimum Corporate Tax Rate has been the subject of discussion for a while now. Nonetheless, the pandemic appears to have sped up the process of coming to a more comprehensive understanding of the problem. This is as a result of nations going on previously unheard-of spending binges to sustain their economy, which have been severely harmed by COVID-19-related limitations. Because to this, the United States, the United Kingdom, and the Eurozone all have budgetary gaps that total 14.9% of GDP, 16.9% of GDP, and 7.2% of GDP, respectively. Government deficits are anticipated to stay high in the near future as countries boost their top economic activities. Government debt levels have increased. As a result, governments are seeking for methods to strengthen their fiscal capacities, and changing the international tax system may help them do so.

India will benefit from these changes to the international tax system in the form of GMCTR or, the Global Minimum Corporate Tax Rate. Generally speaking, industrialised countries have benefited more from tax-friendly international commerce and transactions. This is due to the fact that, for the majority of modern economic history, the movement of value trade, services, and technology has primarily been from developed to developing countries, and that international tax regulations have tended to restrict taxation rights in "source" (developing) countries in favour of "resident" (developed) countries being beneficiaries of revenue.

With the rise in economic importance of countries like China and India, efforts have been made to alter the trajectory. This has been done by changing international tax laws, but it has also largely been done by trying to "catch up" with established business models by attempting to impose flat tax rates on incomes like royalties, technical service fees, dividends, and interest that are typically paid by businesses in developing nations to capital owners or technology providers in developed nations. This glacial pace of development has recently accelerated due to the astonishing growth of online commerce. Furthermore, given that the minimum tax rate for new manufacturing businesses has just been enacted at 15% under GMCTR or, the Global Minimum Corporate Tax Rate, it will neither harm FDI to India nor result in any detrimental or additional tax burden in the hands of foreign investors (plus surcharges). At the same time, it will avoid base erosion of taxation in the nation with regard to outbound investments since, once the global threshold rule is put into effect, the government will be able to recover any tax shortfall paid by a foreign company controlled by an Indian resident below 15%.