‘india will not be on the losing side’

SHISHIR SINHANew Delhi, September 26

Ahead of the fi�nalisation of theconsensus agreement for inter-national tax reform involving130 countries coming to endnext month, offi�cials at the Fin-ance Ministry do not foresee In-dia on the losing side.

Also, doing away with Equal-isation Levy (EL) on digital ser-vices with the introduction ofthe new reform will depend onthe outcome of the negotiation,according to a Finance Ministryoffi�cial.

On July 1, the Organisation forEconomic Co-operation and De-velopment (OECD) announcedthat 130 countries and jurisdic-tions, including India, havejoined a new two-pillar plan toreform international taxationrules and ensure that multina-tional enterprises pay a fairshare of tax wherever they oper-ate.

The timeline for the conclu-sion of the negotiations in-cludes an October 2021 deadlinefor the remaining technicalwork on the two-pillar ap-proach, as well as a plan for theeff�ective implementation in2023.

Talking to BusinessLine,Tarun Bajaj, Revenue Secretary,said that detailed discussionsare yet to take place, based onwhich the exact contours ofthat agreement will be built up.“However, we are part of the ne-gotiation, and it has beenagreed to that larger fi�rms thatoperate in all the countries and

don’t pay taxes in those coun-tries will also now pay taxes inour country,” he said.

Paying taxes in IndiaHe expects a large number ofsuch fi�rms to end up payingtaxes in India.

“We have done reasonableguestimate and I don’t think In-dia will be the loser there, but itwill depend on what exact con-tours are fi�xed in detailed nego-tiation to what is the percent-age of share of taxes that willhappen,” he said.

The proposed solution con-sists of two components: PillarOne, which is about realloca-tion of additional share ofprofi�t to the market jurisdic-tions; and Pillar Two consistingof minimum tax and subject totax rules.

According to the OECD, un-der Pillar One, taxing rights onmore than $100 billion of profi�tare expected to be reallocatedto market jurisdictions eachyear. The global minimum cor-porate income tax under Pillar

Two – with a minimum rate of atleast 15 per cent – is estimated togenerate around $150 billion inadditional global tax revenuesannually. Additional benefi�tswill also arise from the stabilisa-tion of the international tax sys-tem and the increased tax cer-tainty for taxpayers and taxadministrations, said the OECD.

“An important thing is theconcept of minimum tax. So,places where people wouldrush to because there were notaxes or very small taxes, thatwould lose so much of signifi�c-ance and that also should helpour country,” said Bajaj.

On whether India might haveto withdraw the EL once theproposed taxation system is inplace, Bajaj said that exact con-tours fi�nalised post detailed dis-cussion will determine this is-sue.

Google TaxIntroduced in 2016, also knownas ‘Google Tax’, EL was initiallyapplicable to payments for di-gital advertisement services re-ceived by non-resident com-panies without a permanentestablishment here, if these ex-ceeded ₹�1 lakh a year. The rate oftax was 6 per cent.

The companies using theseservices are required to with-hold the tax amount. In the2020-21 Budget, the govern-ment widened the ambit of thelevy by including e-commercecompanies.

The applicable tax rate is twoper cent (plus a surcharge) onamount of consideration re-ceived/receivable by an e-com-merce operator. This came intoeff�ect from April 1 this year.

‘India will not be on the losing side’INTERNATIONAL TAX REFORM

Revenue Secretary expects large numberof fi�rms to end up paying taxes in India

Tarun Bajaj, Revenue Secretary