TOPIC: GS 3 Indian Economy and issues relating to Planning, Mobilization of Resources, Growth, Development and Employment.
A far-reaching tax measure
What is the news?
- The Pillar Two proposal was the Organisation for Economic Cooperation and Development’s (OECD) plan to plug the remaining Base Erosion and Profit Shifting (BEPS) issues
- It provide jurisdictions the right to “tax back” where other jurisdictions have either not exercised their primary taxing right or have exercised it at low levels of effective taxation.
- The move intends to achieve minimum effective taxation of more than 10%, possibly up to 15%, given the latest proposal put forward by the United States.
Reason for New Tax laws
- The objective is to minimise tax incentives and ensure that companies choose to be situated in a particular country based on other commercial benefits.
- In its recent proposal, the U.S. sought to impose a global minimum tax on foreign income earned by U.S. corporations.
- The proposal is perhaps intended to disincentivise American companies from inverting their structures due to the increase in the U.S. corporate tax rate.
Similarities in laws
- The proposal is similar to Pillar Two except for the rate of the effective minimum tax. While the OECD was considering a 1012% rate, the U.S. proposed a 21% rate.
- This caused pushback from countries such as Ireland, which made a case for fiscal autonomy for smaller jurisdictions to compete with larger economies.
- India has been part of the Pillar Two discussions and has not objected in principle to the proposal.
- The proposal, along with the increased tax bill for U.S. companies, may benefit the Indian revenue department.
- The tax department might benefit even at a 10% rate since the proposal would cover off shore structures set up by Indian companies.
Example
Pillar Two acts as a set of controlled foreign corporation rules, where, for instance, if an Indian headquartered multinational corporation (MNC) has an entity in Singapore or the Netherlands through which global operations are run, and its income from global operations is not taxed at an effective rate of 10% or 15%, then it can be taxed in India.
India’s Stand
- The State of Tax Justice report of 2020notes that India loses over $10 billion in tax revenue due to the use of offshore structures (Tax heaven)
- Startups and large Indian conglomerates commonly use off shore structures for conducting global operations.
- Revenue from such operations is often retained offshore and not repatriated to India.
- Tax advantages incentivise such structures, due to which taxes on such income are not paid in India.
- Once these proposals are implemented, Indian companies would have to pay additional taxes on their off shore structures to the extent that the effective rate of tax is lower than the global minimum tax rate.
Benefits
- With tax incentives neutralised, countries may have to compete on other factors like better regulatory regimes, ease of doing business, access to global talent, among others.
Global Scenario
- Several countries have taken a different approach to the rate of global minimum tax.
- While France and Germany have expressed support
- The EU has raised concerns regarding the high rate proposed by the United States.
- Countries have stated that the proposal infringes upon their tax sovereignty and that the fight against unfair tax competition should not become a fight against competitive tax systems.
Way Forward
- As economies struggle amid the COVID19 pandemic the necessity of encouraging trade and economic activity should be prioritized over disagreements on tax allocations.
- A tax related trade war or entrenchment of unilateral levies may further harm both global and national economies.
Mains Question
The U.S. push for a global minimum corporate tax may help India, but it can also cause international disagreements. Explain
Sources : https://www.thehindu.com/opinion/op-ed/a-far-reaching-tax-measure/article34711365.ece
PRELIMS PUNCHERS
- Pobitora Wildlife Sanctuary
It is a wildlife sanctuary on the southern bank of the Brahmaputra in Morigaon district in Assam, India. It was declared in 1987 and, providing grassland and wetland habitat for the Indian rhinoceros. Pobitora Wildlife Sanctuary holds one of the largest Indian rhinoceros populations in Assam
Under the Indian Rhino Vision 2020 which is a joint programme of the Department of Environment & Forests, Govt of Assam, WWF India, the International Rhino Foundation and the US fish & wildlife service, six rhinos were translocated from Pobitora and re-introduced into the Manas National Park. The grassland vegetation consists of at least 15 grass species and Important Bird Area and home for more than 2000 migratory birds and various reptiles.
- Black Carbon
Black carbon is formed by the incomplete combustion of fossil fuels, wood and other fuels. Complete combustion would turn all carbon in the fuel into carbon dioxide (CO2), but combustion is never complete and CO2, carbon monoxide, volatile organic compounds, and organic carbon and black carbon particles are all formed in the process. The complex mixture of particulate matter resulting from incomplete combustion is often referred to as soot.
Black carbon is a short-lived climate pollutant with a lifetime of only days to weeks after release in the atmosphere. During this short period of time, black carbon can have significant direct and indirect impacts on the climate, the cryosphere snow and ice, agriculture and human health. Several studies have demonstrated that measures to prevent black carbon emissions can reduce near-term warming of the climate, increase crop yields and prevent premature deaths.
- The Doppler effect
It is the change in frequency of a wave in relation to an observer who is moving relative to the wave source. A common example of Doppler shift is the change of pitch heard when a vehicle sounding a horn approaches and recedes from an observer. Compared to the emitted frequency, the received frequency is higher during the approach, identical at the instant of passing by, and lower during the recession
The total Doppler effect may result from motion of the source, motion of the observer, or motion of the medium. Each of these effects is analyzed separately. For waves which do not require a medium, such as electromagnetic waves or gravitational waves, only the relative difference in velocity between the observer and the source needs to be considered, giving rise to the relativistic Doppler effect.
- Zeolite
Atmospheric air contains 78 % nitrogen and about 20 % oxygen and zeolites adsorb or traps nitrogen onto its surface. Zeolite or molecular sieve are micro porous crystalline solid of aluminium silicate. They are used in the Medical Oxygen Plant technology, developed by DRDO for on‐board oxygen generation on aircraft like Tejas.
The technology will now be used to generate oxygen for medical purposes to battle the current oxygen shortage brought on by the Covid second wave. The technology will be especially useful in urban, remote and rural settings with on-site generation of medical oxygen in a cost-effective manner. Hospitals will be able to generate on site medical oxygen, in a cost-effective manner with this oxygen plant rather than depending upon sourcing it from other places.
PRELIMS QUESTIONS
1.Pobitora Wildlife Sanctuary is located in
- Tripura
- Assam
- Uttarkhand
- Nagaland
Answer: 2
It is a wildlife sanctuary on the southern bank of the Brahmaputra in Morigaon district in Assam, India. It was declared in 1987 and, providing grassland and wetland habitat for the Indian rhinoceros. Pobitora Wildlife Sanctuary holds one of the largest Indian rhinoceros populations in Assam
Under the Indian Rhino Vision 2020 which is a joint programme of the Department of Environment & Forests, Govt of Assam, WWF India, the International Rhino Foundation and the US fish & wildlife service, six rhinos were translocated from Pobitora and re-introduced into the Manas National Park. The grassland vegetation consists of at least 15 grass species and Important Bird Area and home for more than 2000 migratory birds and various reptiles.
Qn 2. Consider the following statement with reference to Black carbon
- Black carbon is a Long-lived climate pollutant
- They incomplete combustion of fossil fuels, wood and other fuels
Select the correct statement using code given below.
(a). 1only (b) 2 only
(c). Both of them (d). None of the above
Answer : B
Black carbon is formed by the incomplete combustion of fossil fuels, wood and other fuels. Complete combustion would turn all carbon in the fuel into carbon dioxide (CO2), but combustion is never complete and CO2, carbon monoxide, volatile organic compounds, and organic carbon and black carbon particles are all formed in the process. The complex mixture of particulate matter resulting from incomplete combustion is often referred to as soot.
Black carbon is a short-lived climate pollutant with a lifetime of only days to weeks after release in the atmosphere. During this short period of time, black carbon can have significant direct and indirect impacts on the climate, the cryosphere snow and ice, agriculture and human health. Several studies have demonstrated that measures to prevent black carbon emissions can reduce near-term warming of the climate, increase crop yields and prevent premature deaths.
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