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G20 Presidency: Opportunity for India

India can use its G-20 Presidency to solve the problem of exchequer of the countries of the world through agenda setting and facilitating deliberations in this regard among the G-20 countries. — Dr. Ashwani Mahajan

 

On December 1, 2022, India will assume the Presidency of the G-20 countries and it will remain till November 30, 2023. It is noteworthy that G-20 (that is, Group of Twenty) is a group of large developed and developing countries of the world. There are at present 19 countries in G-20, which include Argentina, Australia, Brazil, Canada, China, France, Germany, India, Indonesia, Italy, Japan, Republic of Korea, Mexico, Russia, Saudi Arabia, South Africa, Turkey, England and USA. Not only two-third of the world’s population lives in these countries, 85 percent of the world’s GDP also comes from these countries. These countries account for 75 percent of the international trade. Due to the presidency of the group of such an important group of countries, about 200 small and big meetings are to be organized in India. It is being said that this will boost tourism.

But not only tourism, the Presidency of the G-20 group of countries is an opportunity for India to make efforts to find appropriate solutions of the challenges facing the world. For some time not only India, but the whole world has been going through some economic challenges. Many countries of the world are struggling with the global recession, rising prices and shortage of food items. However, tech firms, social media firms, new technology etc, though are making our lives convenient, many governments around the world are facing several problems due to the same. Internet technologies are facilitating businesses and are reducing the distance between the countries of the world. Old industries are waning and new businesses are taking birth. In the race to get investment, governments of different countries of world are moving towards competitive taxation, impacting the revenue. That is, every country is trying to show that they are facilitating investment by reducing the rate of corporate tax. But at the same time, tax revenue is also decreasing in all these countries, causing hardships to the governments.

Not only tech companies but even other multinational companies are also trying to avoid paying taxes while running their global business. Neither do they want to pay taxes in their country of origin nor in the countries where they are operating their business.

Simultaneously, private virtual currencies (Cryptos) have come into play. Cryptos are defying official currencies. Since these currencies are bought and sold through online, there is no barrier to their global movement. Collecting tax on these also remains a challenge. India’s Finance Minister Nirmala Sitharaman has also underlined that regulation of these currencies is not possible without global consensus and cooperation.

What is needed today is a consensus to deal with these problems at the global level and all the countries must worktogether find solutions to them.

Global Minimum Tax

In a race to attract more investment, most countries are competing to reduce the corporate tax rate. Whereas, today the marginal rate of personal tax in India is 33 per cent and in many cases even higher, the corporate tax rate was reduced to 25 per cent earlier and to only 15 per cent for new businesses. The stated objective was that this would attract new investments.

More or less the same is true of many other countries as well. That is, the competition to reduce tax rates has started in every country. Additionally, many tax havens offer different way of evading taxes. Hot monies and super rich people of different countries are also attracted to countries with lower tax rates. Super rich from many countries including India are moving to other countries of the world. Due to this competitive taxation, though there is hardly any gain in investment, but the revenue of the governments is definitely decreasing. US President Joe Biden says companies operating in more than one country should be mandated to be taxed at least at 15 percent. A consensus has also been reached in this regard among 136 countries. If all countries agree on a minimum tax, then it can be beneficial for all countries, which can increase tax revenue. For this work, India can use the opportunity of G-20 Presidency to move towards a global consensus in this regard.

Many virtual currencies are becoming increasingly popular today. There are many cryptocurrencies (that is, virtual currencies) in circulation, including bitcoin and lithium, and their prices have multiplied in last few years. Naturally, due to the huge fluctuations in their price, they are causing great attraction among the people (especially the youth), because the possibilities of speculation are very high. People’s hard-earned money is being swallowed by these speculative activities.

The possibilities of regulation of virtual currencies by government of a single country are limited. Many a times criminals, including terrorists, drug dealers etc., are duping the normal banking channels by transacting in these virtual currencies. These virtual currencies are becoming a cause of concern for all governments.

Recently, India’s Finance Minister Nirmala Sitharaman had said that there is a need for international cooperation for effective regulation of cryptocurrencies. Reserve Bank of India believes that the country’s fiscal and monetary stability may be at risk due to cryptocurrencies. While agreeing with this, Finance Minister Nirmala Sitharaman has expressed the view that there will be a need to assess their risks, benefits as well as common taxonomy and standards at the international level.

India is more affected from cryptocurrencies as compared to other countries and at the same time India has also taken an initiative by taxing the profits of cryptocurrencies and has also developed understanding on the challenges of cryptocurrencies.

Tax on tech & e-commerce MNCs

Governments have to constantly find new sources of revenues to run their affairs and for the welfare of people. Generally, governments work towards collecting taxes from emerging sectors. But the irony of the present time is that the sectors where development is taking place, companies there, are avoiding taxes under the guise of their international business. Although various MNCs used to do this in the past as well, these tech, e-commerce and social media companies are doing in bigger proportions by avoiding paying taxes through various tactics.

In India, the government has moved towards imposing an equalization levy on their businesses. But the incidence of this tax is very limited. Companies like Google, Facebook are avoiding paying taxes on their advertising income and e-commerce companies are evading tax by showing normal business losses due to their cash-burning strategy to grow their business and increase their capital valuations. These companies need to be taxed differently. The special thing is that these companies are trying to avoid taxes even in their countries of origin.

India can use its G-20 Presidency to solve the problem of exchequer of the countries of the world through agenda setting and facilitating deliberations in this regard among the G-20 countries.

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