According to tax experts, India is likely to benefit from the pact that the Group of Seven (G7) advanced economies made on the global tax system. The finance ministers and central bank governors of the G7 countries met for two days in London and agreed on a landmark deal to prevent multinational corporations from avoiding taxes by investing profits in low-interest countries.
The G7 nations, made up of the US, UK, Germany, France, Canada, Italy and Japan, have agreed to support a minimum global corporate tax rate of at least 15 percent for large companies in every country they operate in the UK , will help to create “a more level playing field” and act against tax avoidance. They also agreed to reforms that will result in multinational corporations paying taxes in the countries where they do business, a move aimed at closing loopholes in cross-border taxation.
Experts believe India’s effective tax rate is still above the global minimum tax rate, which would not affect companies doing business in India. Nangia Andersen India Chairman Rakesh Nangia emphasized that India is attracting foreign investment due to its large domestic market, quality workforce at competitive prices, strategic location for exports and a thriving private sector, according to PTI news agency.
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Consulting firm AKM Global, tax partner Amit Maheshwari, said India is expected to benefit from the big G7 deal as it is a big market for a large number of tech companies, PTI reported. “It remains to be seen what the division between the market countries would look like. In addition, the minimum global tax of at least 15 percent means that the Indian tax break regime would most likely continue to work and India would continue to attract investment. ”Maheshwari was quoted by PTI as saying.
EY India’s national tax chief Sudhir Kapadia said support for a global minimum corporate tax rate is groundbreaking, especially for large and developing countries like India, which would always find it very difficult to keep corporate tax rates artificially low in order to raise them much needed foreign direct investment in the country.
“Even the recently announced lower rate of 15 percent for new manufacturing facilities in India just barely reaches this new threshold and thus does not affect this much-needed boost for manufacturing in India. Equally important is the explicit granting of tax rights to the ‘market’ countries’ for a share of the global profits of multinational corporations, thereby balancing the right to tax with the place of economic performance, “added Kapadia.
(With PTI inputs)