A recent Pandora Papers investigation revealed that tax havens and other corrupt methods were used by many of the world’s richest people to evade taxation. It has shed light on the concept of ‘tax justice’ and has forced the abolition of tax abuses and tax havens to be seen as a human rights issue.
The simple meaning of ‘tax justice’ is that tax should be paid by those on whom it is payable. The concept of ‘tax justice’ includes that tax should be paid equally by each of the persons who are part of it.
current scenario
Annual Global Loss: According to the ‘State of Tax Justice Report 2000’ published by the ‘Tax Justice Institute’, there was an annual global loss of about $ 427 billion due to tax abuse (tax evasion and tax avoidance). Of this, about $245 billion is lost by multinational corporations (MNCs) shifting their profits to ‘tax havens’, while $182 billion is lost by wealthy individuals hiding their undeclared assets and income offshore. happened because of
Uneven effect: The effect of tax evasion is greater in low-income countries; They suffer a much higher equivalence ratio loss than high-income countries.
Role of high-income countries: Although high-income countries lose $382 billion in tax revenue annually, they are also responsible for facilitating 98% of global tax losses.
The ‘Corporate Tax Haven Index, 2021’ published by the ‘Tax Justice Institute’ has found that the member countries of ‘Organization for Economic Co-operation and Development’ (OECD) jointly face the world’s corporate tax abuse risks. are responsible for 68% of the
India: India was ranked 47th in the ‘Financial Secrecy Index’ published by the Tax Justice Institute.
Due to global tax abuse, India loses 10 billion dollars per year. This is equal to 0.41% of India’s annual GDP.
Mauritius, Singapore, and the Netherlands are the major countries through which most tax abuse occurs.
One positive aspect is that India is not included in any global index as a corporate ‘tax haven’. Thus, India does not cause any tax loss to any other country.
Steps taken to control tax evasion
Global Steps to Control Tax Evasion:
OECD’s ‘Inclusive Framework Statement‘: Under this ‘two-pillar solution’ has been adopted.
The first pillar applies to the about 100 largest and most profitable multinationals, and they reallocate a portion of their profits to the countries where they sell their products and provide their services.
The second column, which includes “any company” with annual revenues of more than €750 million, will now be subject to an effective minimum rate of 15 percent.
According to the OECD, the “global minimum tax” could generate about $150 billion in additional global tax revenue per year.
Steps taken by India to Control Tax Evasion:
Legislative Action:
Fugitive Economic Offenders Act, 2018 (The Fugitive Economic Offenders Act, 2018)
The Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 [The Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015]
Prevention of Money Laundering Act, 2002
International Cooperation:
Double Taxation Avoidance Agreements- DTAAs:
India is actively engaging with governments of other countries on Double Taxation Avoidance Agreements (DTAAs)/Tax Information Exchange Agreements (TIEAs)/Multilateral Conventions.
Automatic Exchange of Information:
It will significantly aid the global effort to combat tax evasion by proactive sharing of financial information.
Foreign Account Tax Compliance Act of the United States of America (Foreign Account Tax Compliance Act- FATCA)
India has entered into an information sharing agreement with the US under FATCA.
What steps should be taken in future to control tax evasion
‘ABCs’ measures of tax justice: All major economies should implement three transparency measures designed to combat corporate and private tax abuse and other corruption. These are the three ‘ABC’ measures: ‘Automatic exchange of information’, ‘Beneficial ownership registration’ and ‘Country by country reporting’. .
The ‘automatic exchange of information’ is a practice of sharing data between countries, allowing the exchange of information about corporations and individuals conducting cross-border transactions in each country.
‘Profit-beneficiary ownership registration’ refers to an exercise in identifying the beneficial owners of companies and other entities. A for-profit owner is the actual person who ultimately owns, controls, or benefits from a company or legal entity. It will lift the corporate veil behind which many people hide to avoid accountability.
‘Country-by-country’ public reporting is an accounting exercise designed to expose multinational corporations who are shifting their profits to ‘tax havens’ for the purpose of paying lower taxes.
Unitary Taxation: It is for imposing tax on the shell companies established by them (i.e. tax haven) rather than their actual location (i.e. where they employ employees, operate factories, commodities and There is a way of levying tax on the basis of sales of services).
UN Convention on Tax: With the establishment of the ‘United Nations Tax Convention’, international tax rules will be determined according to the need and aspiration of countries around the world, through a real representative process in the United Nations. The United Nations Tax Convention can unite countries around the world for legally binding and equitable standards of corporate taxation, financial transparency and tax justice.
Global Asset Register: It is proposed to create a comprehensive international registry of aggregate wealth and assets, which will provide policymakers and the public with the data needed to tackle global tax abuse and address inequality.
India-specific tips:
There should be more disclosure by companies about how much profit they make and how much tax they pay in each of the countries in which they are active.
Indian Finance Code: There is a need for simplification of taxation laws in India. In this context, there is a need to implement the ‘recommendations’ of the ‘Financial Sector Legislative Reforms Commission’.
The commission has proposed the Indian Finance Code, which will include new laws for the Indian financial system.
Adoption of international best practice: India may consider the option of revising its tax laws to align it with international practices and incorporate the traditional standard of protection of fair and equitable treatment.
Along with this, India should clarify the open-ended open terms in the ‘Model Bilateral Investment Treaty’ (Model BIT). With this, India will have to face the minimum of disputes.
Conclusion
Corporate tax abuse promotes inequalities, fosters corruption and undermines democracy. To rectify this unjust scenario, we must reshape our tax and financial systems to give equal importance to the needs of all members of society instead of prioritizing the wishes of the richest multinational corporations.
India and other developing countries have a special need to increase their tax revenue to ensure that they are able to spend for their essential activities. To achieve this objective, it is necessary that a equitable tax system should be established to achieve tax justice.
