G7 is trying to bring up a Common Single Tax system across the world!

While we are proud of the One Nation One Tax formula of GoI, three years back Trump did propose a common Corporate tax across the world to avoid corporates shifting their profits to low tax countries.

India has a 25% to 40% plus a surcharge of 12%, corporates would not be happy to report huge profits in India. Better to spend money than to save! (Government encourages spending than saving! That is for another article).

What the G7, the G20 and the OECD countries are trying to do is, to bring about a single corporate tax across the world at the rate of 15%. What does this mean to the world?

Most countries will be signatories to it and left out others will also be drawn into the fold sooner than later.

Forget what it means to countries, what does it mean to us, common people? On the outset, it might look like something that would be good for the society by taming those corporates that try to shift their money to low tax countries.

We will have to take a look at history to understand what it means.

1980s. When we in Chennai wanted to buy a car, would go to Pondicherry to buy one, because the tax rate was almost 15% less than that in Tamil Nadu. So was the case with computers. My first computers were billed from Goa! Because Goa taxed electronics at a very competitive price in order to attract electronics manufacturers.

Today, all those are gone. Everyone charges the same. A single GST! In our short sighted outlook, we did not see what we are signing in with GST is, to a ‘taxation monopoly’!

How can a single tax be beneficial to the common man? It can never be; simply because governments will all work in sync trying to move the tax rates up and up! Efficiencies will never be built in because there is no competition between the states.

We have virtually removed competition between the governments to reduce taxes, in order to be more attractive to the investor, to the industry, to the common public.

Now switch to the international view.

What India and the rest of the countries did in their own playgrounds, bringing about a single tax and removed competition between cities, between states and provinces, now the heads of states are joining together to kill the competition between nations.

Tax competition was an important need to ensure balance between tax rates in developed and developing countries. With a uniform tax rate, how would one nation be a better destination vis-à-vis another? Governments will lose their individual edge to give a reason for companies / corporates to move in and set up new factories in their country.

Who will benefit out of this?

Governments of developed countries, of course. They will have one problem less to monitor. They need not worry about those companies that might shift their base because tax rates are lower somewhere. They will get their taxes!

What is the gain for the people?

Companies will stay in one place. Therefore, people in developed countries can be assured of continuing employment. Manufacturing bases need not get shifted because tax rates are lower in some other country. That incentive is not going to be there.

At the same time, those people in those countries who are still to see employment can sell themselves only with other reasons such as, lower salaries etc., The moment salaries go on par, they are no more attractive for the corporates.

Apart from this, with governments working in sync across the world, tax rates can be manipulated by one council which would decide the world tax rates. Nobody to compete, these tax rates could go up over a decade and common people might have very little to no say in the matter.

Something like what is happening with GST! The Central government has usurped all the power of taxation to themselves in the name of GST council. States have become vassals. Unless the center is weak and all the states have a federal hold on the council, possibility of which is pretty rare in the near future, GST rates will be decided unilaterally by the Central government.

How to employ that tax money? Who will get what and how much will they pay the states will all be decided by the Central Government? Even the very first year of operation has shown us that the central government can just deny the dues of the states even after collecting the taxes from the taxpayers.

If you and I were to collect taxes from our customers and not pay the government, we will pay it with a penalty or go to jail even, but the central government can willfully stop paying tax dues to the states and still have the audacity to tell them, go and borrow to meet your expenses.

This is possible only with a monopolistic tax regime. Now, we are heading for one across the world!