There is an increasing demand for global minimum tax, across the world. Discuss the significance, prospects, and challenges for India.

Recently, the Organisation for Economic Cooperation and Development (OECD) announced that 136 countries (including India) have agreed to the Global Minimum Tax (GMT), which is to be paid by big MNCs, regardless of their location. The rate of GMT is fixed at 15%.

Significance of GMT:

  • It will help to counter tax evasion by MNCs, that make use of complex webs of subsidiaries to hoover profits out of major markets into low-tax countries or Tax Havens such as Ireland, the British Virgin Islands, the Bahamas, Panama, etc.
  • It will ensure that they pay at least some of their taxes to the countries, where they do business.
  • Effectively counters the Base erosion and profit shifting practices, whereby companies use to avoid paying taxes in the country and shift their profits to countries with minimal taxes.

Prospects for India:

  • India has been a victim of tax evasion by MNCs and profit shifting. This step will lead to greater revenue generation for India.
  • Further, it is in line with India’s other initiatives like the Digital services tax, to tax companies providing online services in India.

Challenges:

  • Difficult to establish a global consensus on its implementation.
  • It can lead to further tax litigations and disputes between the nations.
  • India may find it difficult to implement in absence of Double Tax Avoidance Agreement treaties.

Thus, the global minimum tax is a step in the right direction and must be implemented in letter and spirit for global welfare.

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