Taxations, crypto-currencies, tech giants flouting norms are key concerns for G20 under Indian Presidency
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 is a group of large developed and developing countries of the world.
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 is an opportunity for India to make efforts to find appropriate solutions to 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., while making our lives convenient are posing challenges for governments around the world. 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 the 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 online, there is no barrier to their global movement. Collecting tax on these also remains a challenge. 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 work together to find solutions to them.
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. Additionally, many tax havens offer different ways of evading taxes. Hot monies and super rich people of different countries are also attracted to countries with lower tax rates.
Due to this competitive taxation, though there is hardly any gain in investment, 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 per cent. 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. The possibilities of regulation of virtual currencies by the government of a single country are limited. Many a time criminals, including terrorists, drug dealers, etc., are duping the normal banking channels by transacting in these virtual currencies. Recently, Finance Minister Sitharaman had said that there is a need for international cooperation for effective regulation of cryptocurrencies. The Reserve Bank of India believes that the country’s fiscal and monetary stability may be at risk due to cryptocurrencies.
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.
In India, the government has moved towards imposing an equalization levy on their businesses. But the incidence of this tax is very limited. 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.
(The author is Professor, PGDAV College, University of Delhi)