Global Body Suggests ‘Google Tax’, Higher Rate On Monopolies During Pandemic

The governments across the world should consider imposing high taxes on large firms having monopoly or limited competition and lower rates for smaller companies in highly competitive sectors to raise revenue during the pandemic, according to a report.

As countries are in “pressing need” for fiscal resources, maintaining the present tax rules will not be sufficient, said the report by the Independent Commission for Reform of International Corporate Taxation, a fair tax advocacy.

With the fall in companies’ profits, except for large e-commerce and medical firms, the corporation tax revenue will decline, too, it said. While sales and -added tax revenue will fall with declining consumption, personal income tax revenue for governments will drop with unemployment, it said. The global tax revenues, according to the report, will probably fall more than the 11.5% decline recorded during the global financial crisis.

Large companies are already lobbying for tax concessions and bailouts to “stimulate reconstruction investment”. Lowering corporate tax further will exacerbate the international “race to the bottom” of corporate tax rates aimed at attracting foreign investments. Bailouts not only destroy level-playing field of the market, but also are particularly adverse for developing countries that lack the resources to provide such assistance on the scale of the developed countries, the report said.

There’s no evidence that the recent trend of lowering corporate tax rates has stimulated productive investment and growth, it said.

India, in September, cut corporate tax rates to one of the lowest in Asia as it aimed to repair the slowing economy, even before the coronavirus pandemic hit. Earlier this month, India’s tax department said setting up of new manufacturing facilities has multiple preliminary steps like acquisition of land, construction of factory sheds, setting up of offices and other infrastructure. Such activities cannot be completed in just a few months and the plants cannot start production immediately. The outbreak of Covid-19 may further delay this process but growth in production due to tax reforms is bound to happen, it had said.

Developing countries rely relatively more on corporate tax income as a source of revenue and are only able to raise between 10% and 20% of GDP in tax collections compared with 40% collected by advanced economies.

“During the current pandemic, it’s clear that most large firms have excess capacity and face liquidity problems which can be resolved by bank loans,” the report said. As the world economy recovers, tax cuts will not lead to more corporate investments due to excess capacity and uncertainty on expansion.

Introduce Digital Services Tax

The governments should consider a progressive digital services tax, which countries like India, Austria, Brazil, France, the U.K., Italy, Indonesia, Spain, Turkey have either adopted or are considering introducing, the report said. The progressive tax rate would mean increasing tax rate as sales increase.

The move, however, has recently led to the U.S. Trade Representative office initiating investigation into digital services tax, which could lead to tariffs being imposed on exports, the report said.

Tax On Wealth

The ICRICT report, citing Oxfam’s ‘Time to care’ findings, said taxing an additional 0.5% of the wealth of the richest 1% over the next 10 years will equal to investments needed to create 117 million jobs in education, health and elderly care, among other sectors.

The report cites Amazon.com’s founder Jeff Bezos’ net worth growing 31% in the past two months, and fortunes of Bezos and Facebook founder Mark Zuckerberg growing by nearly $60 billion.

The report lists five steps to tackle tax avoidance:

1. Higher corporate tax rate for large corporations in oligopolised sectors with high rates of return.
2. Set a minimum effective corporate tax rate of 25% worldwide to stop base erosion and profit shifting.
3. Introduce progressive digital services taxes.
4. Publicise country by country reporting for all corporations benefitting from state support.
5. Publish data on offshore wealth for adopting effective progressive wealth taxes on residents, and income tax rates on highest income taxpayers.