NEW DELHI: India has extended its support for an international tax framework, which calls for global minimum corporate tax of 15% and makes way for countries to tax multinationals, especially tech giants like Google, Facebook and Amazon, on their earnings there. According to finance ministry officials, India will be able to tax big MNCs doing business in the country without having physical presence here up to 20% of their profits.
In 2017-18, the Indian operations of Google and Facebook reported total revenues of Rs 9,800 crore ($1.4 billion). Their tax payments were Rs 240 crore ($38 mn) primarily on income.According to sources, India may have to let go of the 2% equalisation tax levied on these firms, which is also a major hurdle in the trade negotiation between the US and India.
After remaining a non-starter for many years, the tax proposal got a big push after US president Joe Biden and his Treasury Secretary Janet Yellen sought to stop American firms fleeing to countries like Ireland, Hungary and Lichtenstein and those in the Caribbean region that offer lower corporate taxes.According to OECD, profit shifting practices cost countries $100-240 billion in lost revenue annually, which is the equivalent to 4-10% of the global corporate tax revenue.
Some experts warn the proposal is tilted in favour of big nations. What will be the long term implications of the tax for India, is still a matter of debate. Finance ministry officials however claim that they have bargained hard on their demands.