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Global minimum corporate tax rate may benefit the US, but not India

While India seemed to evolve amidst the Covid-19-pandemic-led opportunities, the recent urging by the US Treasury Secretary Janet Yellen to the G20 nations to move towards a global minimum corporate tax can weaken it from realising long-term economic prosperity. The American proposal to adopt a minimum global corporate income tax in an attempt to reverse a “30-year race to the bottom” comes across as an unfavourable solution to the underlying problem of tax evasion. Although the novel argument addresses a vital issue common among many nations, yet the solution carries more adverse impacts for developing countries.

The American proposal envisages a 21% minimum global corporate income tax fused with cancelled exemptions on income from countries that do not regulate a minimum tax aimed to deter the shifting of multinational operations and profits overseas. The plan tailors to address the low effective rates of tax forked out by some of the world’s biggest corporations. Digital giants such as Apple, Alphabet and Facebook have been relying on complicated networks of subsidiaries to hoover profits (25-30%) out of tax havens such as Ireland and the Bahamas. Recent figures show that Amazon pays 11.8%, Apple 14.4% and Facebook 12.2%, which is even lower than the global effective rates. This has left the government coffers increasingly short.

Although the justification suggests that it is vital to work with different countries to end the burdens of tax competition and corporate tax-based erosion, the reason behind the American push appears to be domestic. It primarily intends to compensate for any flaws that might arise from the Joe Biden administration’s proposed increase in the US corporate tax rate. The US is eyeing to get $2.5 trillion in 15 years by raising corporate tax rates from 21% currently to 28%. However, doing so in isolation will put the US at a disadvantage vis-à-vis tax havens. Therefore, it wants everyone to follow its lead. Furthermore, it wants to fund its ambitious $2-trillion infrastructure projects from the proceeds of tax revenue. With the proposal being suggested, the US—being the biggest economy by far in terms of consumption and corporations also looking to lock companies at home—aims to emerge as a dominant player.


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