NEW DELHI: As the world is inching towards global tax framework, India expects to gain minimum about $12-13 billion annually in taxation, which it loses to offshore tax havens, once the framework is implemented and expects many companies shifting base back to India.
“Global tax framework is moving the way India wants it so it is a welcome move. Although the negotiations are still on and much will depend on the fine prints, our internal assessment suggests that even with a conservative estimate India will gain about $12 billion -$13 billion annually, which currently we are losing out. Also this will be a great disincentive for companies to shift base to low tax regime and will help in adding jobs as well,” a senior finance ministry official said.
Other independent researches have backed the claim. According to the findings of the first study led by The Tax Justice Network (TJN), an independent research based international network, countries are losing over $427 billion in tax each year owing to international corporate tax abuse and private tax evasion. The report published in February this year, says that India lose $10.3 billion due to corporate tax evasion.
Official claim that if we calculate outbound investments for just tax abuse, including royalties paid to overseas affiliates in low tax jurisdictions, loss will be much more.
What is the big deal?
The framework was there for sometime, but in its current form, it was floated last year to stop large corporations like Google, Amazon from evading tax.
Currently the global framework has two pillars. Pilar one proposes to give countries taxing rights for market jurisdictions and sharing profit where the companies hold a physical presence.
The scope of Pillar One will apply to the largest and most profitable multinationals, like Google or Facebook, which has large consumer base in India and earn via ads and other tools, yet get away by paying paltry tax. By this arrangement they also evade tax back home.
In 2017-18, the Indian operations of Google and Facebook reported total revenues of almost Rs 9,800 crore ($1.4 billion). Their tax payments were around Rs 240 crore ($38 million). Once the deal is sealed, India will able to tax these corporates. However it has to let go the equalisation levy, it currently levy on such giants.
The second pillar of deal proposes a global minimum tax of 15%, which is under negotiation. Experts claim that the second pillar would help countries like India that sees a lot of investment coming from low tax jurisdictions like UAE or Singapore.
“Of the two parts or “pillars” of the scheme, India is set to gain more from the second pillar, which proposes a global minimum income tax. There are many companies, startups who have set their base in low tax jurisdictions or investment hubs like Singapore, UAE or route their invoicing through these jurisdictions. Now India will be able to tax income flowing to these companies to the extent below the minimum tax rate. Consequently, this may vacate the need to route these transactions through such companies and leaves a greater amount of income base for market countries like India to tax,” Rohinton Sidhwa, Partner, Deloitte India explained.
So even if the host country is charging 2 or 3%, India will be able to claim the balance of the 15% tax. However Sidhwa adds that the quantum of the gain can be better assessed when the final prints will be released, which is expected in October.
Finance Minister Nirmala Sitharaman had already shared India’s expectations and suggestions with US treasury secretary Janet Yellen, and after discussion, extended support to the global tax framework.