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India to Assess US Exit from Global Tax Deal

Revenue secretary Pandey says India will evaluate the impact of US withdrawal from the OECD's global tax deal

New Delhi: Revenue secretary Tuhin Kanta Pandey on Tuesday said that India would assess the implications of the United States’ decision to withdraw from the global tax deal. The comment from the government comes after US President Donald Trump's statement in the Presidential memorandum on January 20.

As per the Trump’s statement, the ‘global tax deal’ has no force or effect within the United States, thus nullifying the progress made so far by the Organisation for Economic Cooperation and Development (OECD) to bring 140 countries on the same platform to levy a minimum 15 per cent tax on profits of multinational corporates.

Pandey, who was interacting with in a post-Budget session of industry body Assocham, said that the tax deal is a multilateral approach where the US is much integrally needed. “The US exit has added a lot of uncertainty and if the United States is not joining it then such a pact doesn't work out,” the top official of the finance ministry said.

In 2021, nearly 140 countries signed the OECD’s global tax deal. “If the US has now said that it is walking out of it, then obviously it would be impractical to implement the whole thing. We had some reservations already recorded, but we had broadly gone along with the consensus with some reservations. We have not enacted any legislative measures. Some countries have already done it. If the US withdraws from this process, then I think we will have to evaluate what benefit it will have,” Pandey said here.

The two-pillar solution aimed to address the ‘race to the bottom’ approach of global tax competition and discourage cross-border tax avoidance by firms. Pillar -1 aims to reallocate the residual profits of large multinationals from their home countries to jurisdictions where they generate revenue, and Pillar-2 establishes a 15 per cent global minimum corporate tax.

Around 50 jurisdictions have already adopted or made significant strides towards adoption of GloBE rules. These jurisdictions will have to now undertake a course correction to adjust to the new realities. OECD’s pillar 2 initiative sets a minimum tax rate of 15 per cent for every country that is signatory to it. There is a concern that the US domestic tax rules might conflict with this new global minimum tax.

Concerned over growth of the economy, Pandey, meanwhile, said that the government has taken measures to lower fiscal deficit and delivered a non-inflationary Budget, and the Monetary Policy Committee of the Reserve Bank of India (RBI) has to now decide on interest rate cut to boost growth. “The fiscal policy and the monetary policy need to work in tandem, not at cross purposes. Because a lot more benefit will come also with monetary easing, if we are able to maintain inflation control,” Pandey said.

The Budget has projected a 4.4 per cent fiscal deficit in FY'26, down from 4.8 per cent for the current fiscal year. “It is very important to be clear what we have to do within a certain fiscal regime. And, we have to that extent aided the monetary authorities.” Pandey said at the event.

The monetary policy committee of the RBI will begin its three-day meeting on February 5. The MPC will announce its policy decisions on February 7. Asked about the concerns of rupee depreciation impacting inflation, the revenue secretary said that the depreciation to some extent brings about imported inflation, but it also adds to export competitiveness.

( Source : Deccan Chronicle )
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