Express news service
NEW DELHI: As the world moves closer to a global tax framework, India expects to earn at least $ 12-13 billion a year in taxes, which it loses to offshore tax havens once framework implemented and expect many companies to return their base to India.
“The global tax framework is evolving as India wishes, so this is a welcome initiative. While negotiations are still ongoing and much will depend on the fine print, our internal assessment suggests that even with a conservative estimate India will earn around $ 12 billion to $ 13 billion per year, which we are currently losing. In addition, it will greatly discourage businesses from switching to a low tax regime and will also help create jobs, ”said a senior finance ministry official.
Other independent research has supported this claim. According to the findings of the first study by The Tax Justice Network (TJN), an independent international research-based network, countries lose more than $ 427 billion in taxes each year due to international corporate tax abuse and private tax evasion. The report released in February this year says India is losing $ 10.3 billion due to corporate tax evasion.
Official claim that if we calculate outward investment only for tax abuse, including royalties paid to foreign affiliates in low-tax jurisdictions, the loss will be much greater.
What’s the big deal?
The framework has been there for some time, but in its current form it was launched last year to prevent big companies like Google, Amazon from evading tax.
Currently, the global framework rests on two pillars. The first pillar proposes to give countries taxing rights for market and profit-sharing jurisdictions where companies have a physical presence.
The scope of the first pillar will apply to the largest and most profitable multinationals, like Google or Facebook, which have a large consumer base in India and earn through ads and other tools, but do so. shoot by paying ridiculous taxes. By this arrangement, they also escape tax at home.
In 2017-18, the Indian operations of Google and Facebook reported total revenues of nearly 9,800 crore rupees ($ 1.4 billion). Their tax payments were around Rs 240 crore ($ 38 million). Once the deal is done, India will be able to tax these companies. However, it must abandon the equalization levy, which it currently levies on these giants.
The second pillar of the agreement proposes an overall minimum tax of 15%, which is under negotiation. Experts say the second pillar would help countries like India that see a lot of investment coming from low-tax jurisdictions like the United Arab Emirates or Singapore.
“Of the two components or” pillars “of the device, India should benefit more from the second pillar, which proposes a global minimum tax on income. There are many companies, startups that have established their base in low tax jurisdictions or investment centers like Singapore, United Arab Emirates or route their invoicing through these jurisdictions. From now on, India will be able to tax the income paid to these companies below the minimum tax rate. Therefore, it can negate the need to route these transactions through such companies and leave a larger revenue base to be imposed on market countries like India, ”explained Rohinton Sidhwa, Partner, Deloitte India.
So even if the host country charges 2 or 3%, India will be able to claim the balance of the 15% tax. However Sidhwa adds that the quantum of the gain could be better assessed when the final draws are published, which is expected in October.
Finance Minister Nirmala Sitharaman had previously shared India’s expectations and suggestions with US Treasury Secretary Janet Yellen, and after discussion extended his support for the global fiscal framework.