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  • Oct 07, 2021
  • View: Should India sign up to the global tax deal

    Recently, India re-affirmed its commitment to the OECD/G20 Inclusive Framework deal, along with 132 other countries, to address the tax challenges arising from the digitalization of the economy. Its claim that market jurisdictions deserve a right to tax a portion of the profits of a MNC has largely been accepted, with key details being negotiated currently. Along with other G24 nations, it also flagged that the allocation of taxes under the global deal should be meaningful.

    While tax collection is an important factor, tax policies and actions by tax authorities geared solely towards revenue collection have shown their pitfalls in recent days. The Government has had to roll back the retrospective application of indirect transfer taxes in the aftermath of favourable rulings obtained by Cairn. Further, policy goals of revenue collection should be assessed against the larger context of the Indian budget and revenue requirements. For instance, Mr. Tarun Bajaj, Revenue Secretary, stated recently that when India has a budget of more than Rs 30 lakh crores, an amount of Rs 5,000-10,000 crore is not that important. The fact that India collected close to Rs 2,000 crore in the last financial year through the equalisation levy should factor in the assessment between accepting the global deal versus continuing the unilateral equalization levy. In any event, Mr. Tarun Bajaj pointed out that India is not necessarily bound to lose revenue by signing up to the deal provided certain percentages of the profits is taxable by market countries.