Govt open to talks on US tax plan, seeks help on equalisation levy

The authorities is open to participating in discussions across the minimal international company tax being initiated by the United States (US).
While the US initiative is geared toward addressing the threats of tax leakages being posed by tax havens throughout the globe, the difficulty of equalisation levy or digital taxes must also be addressed positively, authorities sources mentioned. Tax specialists level out that the brand new concessional tax of 15 per cent being provided by India for manufacturing firms might be threatened by the proposals, and there’s a want for a cautious calibration to the brand new regime. “While taxation is ultimately a sovereign function, and depends upon the needs and circumstances of the nation, the government is open to participate and engage in the emerging discussions globally around the corporate tax structure. The economic division and tax department will look into the pros and cons of the new proposal as and when it comes and the government will take a view thereafter,” a authorities supply mentioned.
In September 2019, the Finance Ministry introduced a pointy lower in company taxes for home firms to 22 per cent and for brand spanking new home manufacturing firms to fifteen per cent.
US Treasury Secretary Janet Yellen lately urged the world’s 20 superior nations to maneuver in direction of the adoption of a minimal international company revenue tax. The US plan envisages a 21 per cent minimal company tax fee, coupled with cancelling exemptions on revenue from nations that don’t legislate a minimal tax to discourage the shifting of multinational company operations and earnings abroad.
“India has for long faced threats from tax havens. Now even many startups are moving to Singapore to exploit the tax arbitrage. These issues needed to be looked into. Also, if they are proposing this global minimum level, then why the opposition to equalization levy, why these double standards? We also need to note that the earlier big cases under litigation, in case of a telecom and an energy company, are also due to companies exploiting residency in tax havens, even though entire business presence and income is generated in India,” a supply mentioned, indicating the crucial areas that might be beneath dialogue.
Equalisation levy at 6 per cent has been in drive since 2016 on fee exceeding Rs 1 lakh a yr to a non-resident service supplier for on-line commercials. This is relevant for e-commerce firms which might be sourcing income from Indian clients with out having tangible presence right here within the nation. India — in amendments to the Finance Act, 2020 in March-end — had expanded the ambit of the equalisation levy for non-resident e-commerce operators concerned in provide of providers, together with on-line sale of products and provision of providers, with the levy on the fee of two per cent.
“At the OECD level, discussions have been happening for several years to plug tax evasion and let countries get their fair share of tax through the BEPS (Base Erosion and Profit Shifting) initiative. Many countries are trying to tax digital companies, for instance, equalization levy has been imposed by India or digital services tax by France or the Google tax by the UK. But, the US has been retaliating against digital taxes till now, and they need to change stance on this issue as well to ensure fair treatment,”mentioned Amit Maheshwari, accomplice at AKM Global.
However, the concept after the worldwide minimal tax, nations mustn’t compete on taxes however on infrastructure and different services to draw investments — as being proposed by the US — will not be honest to all. Many nations use tax as an instrument to draw investments. “For example, India’s incentive to tax manufacturing companies at 15 per cent could be nullified if US goes ahead with this minimum tax. Also not all countries can compete with developed countries like US on innovation, infrastructure and other attributes. One problem could be that countries can artificially keep the headline tax rate higher than the minimum tax but give substantial breaks, credits to reduce the effective tax rate. This will of course reduce the incentive to shift profits to tax havens,” he mentioned.
According to a Tax Justice Network report, $427 billion is the levy misplaced yearly to tax abuse, dedicated by multilateral companies and rich people. India’s annual tax loss because of company tax abuse is estimated at over $10 billion, as per the report.
“Fundamentally from India’s standpoint, our corporate tax rates are in any case above those levels being proposed, so I don’t think it adversely impacts India. My guess is India might be supportive of this US proposal because it might only help in terms building a consensus in various other areas,” mentioned Pranav Sayta, nationwide chief, worldwide tax and transaction providers, EY India.