NEWS THAT MATTERS
G7 agrees on a global minimum corporate tax rate of 15%.
Will this benefit India?
The G7 recently arrived at a landmark deal on taxing multinational companies.
The deal announced on June 5, 2021 involving the US, the UK, Germany, France,Canada, Italy and Japan, is likely to be put before a G20 meeting in July. The deal covers two pillars.
The first requires MNCs to pay taxes in countries where they operate and not just where they have their headquarters.
The second pillar commits to a global minimum corporate tax of at least 15% on a country- by-country basis.
Global minimum corporate tax rate would apply to companies’ overseas profits. Therefore, if countries agree on a global minimum, governments could still set whatever local corporate tax rate they want.
But if companies pay lower rates in a particular country, their home governments could “top-up” their taxes to the agreed minimum rate, eliminating the advantage of shifting profits to a tax haven.
HOW WOULD THIS BENEFIT INDIA?
India is likely to benefit from the global minimum 15% corporate tax rate pact as the effective domestic tax rate is above the threshold, and the country would continue to attract investment.
The effective tax rate, inclusive of surcharge and cess, for Indian domestic companies is around 25.17%.
The Tax Justice Network estimates the country to gain at least $4bn (Rs 300 bn), equivalent to ~6 % of FY21 corporate tax collections. So, it is expected to be beneficial for India
How does that impact your wealth?
The Government’s debt levels have surged after supporting the covid hit economy. The potential increase incorporate tax collection will boost the govt’s revenue and improve fiscal capabilities. This, in the long run, is good for the economy and will reflect in future stock prices.
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