‘India to gain 1% more from digital tax deal’

As countries sit for talks on digital tax under the aegis of the Organisation for Economic Co-operation and Development (OECD), director at the Centre for Tax Policy and Administration of the organisation PASCAL SAINT-AMANS tells Dilasha Seth that global digital tax (GDC) and digital service tax (DST) by countries, such as equalisation levy, can’t co-exist. The issue is timing of the withdrawal of DST, which can be decided in the negotiations on digital tax, expected to be concluded by Friday. Edited excerpts:

How justified are the concerns raised by the G24 on the two-pillar solution to address the tax challenges arising from the digitalisation of economies, going through in October?

In the negotiations, all members of the inclusive framework can make their voices heard. The views of the G24 are also taken into account and its participation is valued. The demands of the G24, but more broadly developing countries, have influenced the outcomes of the agreement reached in

July on many features. The final agreement in October is most likely to show some more concessions made due to the influence of the G24 and developing countries in general, in particular India. The features addressing the interests of developing countries include tax certainty aspects and reduction in the threshold under Pillar One after seven years, among others. It is fair to say that it is a balanced agreement, resulting from compromises, and one element cannot be taken in isolation.

What are the prospects of the deal going through amid concerns raised by developing countries?

We can expect an agreement on October 8, which will finalise elements of the package and agree on an implementation plan for 2023.

How justified is the G24’s stand that unilateral measures like equalisation levy should not be withdrawn in one go, but in a phased manner?

While unilateral measures — like equalisation levy or DSTS — were legitimate when there was no global solution in sight, they actually do not bring in much income for countries. Rather, they bring a lot of trade tensions and problems. It is estimated that the global solution will bring in much higher revenues for developing countries, including India.

Several economists and also a report by the IMF (Digitalisation and Taxation in Asia) suggest that developing countries may not have much to gain in terms of revenue in the current form of the framework, which only covers top 100 companies under Pillar 1. In fact, the IMF has estimated that emerging markets, including India, would lose revenue or have a modest revenue gain under the deal being negotiated.

While it is a good initiative to estimate the revenue from Pillar One, I fear your reference is not to a report, but to a blog based on outdated data. We have estimated conservatively, based on the current negotiations and up-to-date data, that developing countries are expected to gain revenues

from both pillars. And, we have communicated the results to the countries. For Pillar One, developing countries are expected to gain an additional 1 per cent of corporate income tax (CIT) revenues, on an average. On Pillar Two, the minimum tax is expected to increase developing country revenue by approximately 1.5-2 per cent of CIT revenues.

But are there no estimates by the OECD to suggest how much the gains would be?

I have just mentioned our conservative estimates, but negotiations are still taking place and certain aspects are still not fully decided.

Will it be possible for the deal to go through if developing countries do not completely withdraw the unilateral measures?

Firstly, under the agreement, the reallocation of profits to market jurisdictions aims to replace the unilateral measures. There will be no rationale for these taxes with the new rules coming in. Second, there is a timing issue, which can be negotiated between countries. The question is about the timing of roll back of these unilateral measures, once the solution is implemented. While some countries want an immediate roll back, others want more time to roll back these measures. In any case, the movement for withdrawal of DSTS is clear and will appease trade tensions brought up by their enactment.

Recently, OECD secretarygeneral suggested that with the experience on the digital taxation deal, a similar carbon pricing deal can be thrashed out. Have preliminary discussions started on that?

Consultations have not yet started. But we hope to start this conversation very soon. We hope to have India on board, as it is a member of an inclusive framework.

Is there any progress on the framework for taxation of cryptocurrency?

We are working to develop a reporting framework to exchange information on crypto-assets. The goal is to deliver this reporting framework in 2022.