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TII SPECIAL
OECD/G20 duo enhance BEPS appeal by flaunting inclusiveness
By Naresh Minocha
Sep 01, 2016

Naresh Minocha, a veteran journalist, specializes in telecom, energy, chemicals, agriculture, economic reforms and governance. In his over 32-years journalistic career, he has worked in different capacities for both Indian and foreign media organizations. These include Financial Express, Indian Express, Business Standard, Business India, Tehelka, the Pioneer, erstwhile Asian Chemical News, International Chemical Information Service and erstwhile asiatele.com.

His current professional engagements include Consulting Editor, taxindiaonline.com and Associate Editor, Gfiles Magazine. At taxindiaonline.com, he has been writing a popular Column known as 'The Ice Cubes' since 2005.

INCLUSIVITY is the new mantra for entities pedalling tax reforms at the global level. G20, Organisation for Economic Co-operation and Development (OECD) & other global entities are harping on the mantra to lure the developing countries into tax reforms net.

If these countries' initial response is any indication, the strategy to make tax reforms acceptable to all might well become a runaway success. Many developing nations hitched to the G20/OECD Inclusive Framework on Base Erosion and Profit Shifting (BEPS) at its first two-day meeting ending 1 July 2016 held at Kyoto in Japan.

According to OECD Secretary-General (SG) report to G20 Finance Ministers (FMs) who met a fortnight back in China, "In addition to the 46 OECD members, OECD accession countries and G20 members, 39 additional countries and jurisdictions have now joined the G20/OECD Inclusive Framework on BEPS, committed to the BEPS package and participating on an equal footing."

This brings the numbers of members in the BEPS Project to 85, with a further 19 countries and jurisdictions that attended the inaugural meeting in Kyoto, and are likely to join the Inclusive Framework by year end.

The Report says: "The meeting of the Inclusive Framework was very fruitful with the adoption of a programme of work aiming at establishing terms of reference and methodologies for the peer review of the 4 BEPS minimum standards by their next plenary meeting in January, so that the review of progress on implementation can begin as quickly as possible."

The Report adds: "At the meeting, many developing countries took the opportunity to identify their own specific concerns, and ask for assistance to address them that took into account their specific environments."

It is too early to judge the real motive and impact of inclusivity mantra on inclusive growth of emerging and poor nations. Five or ten years later, it should be possible to assess how far developing countries participation in rich nations' pet project, BEPS, helped them increase tax revenue.

In an Inclusive Framework promotional document released in February 2016, OECD has quoted UNCTAD report as saying that developing countries lose around USD 100 billion per year in revenues due to tax avoidance practices. Thus, by participating in the Inclusive Framework, the developing countries can take measures to protect their tax base. The initiative can include development of provisions to avoid treaty abuse and provisions for country-by-country Reporting.

With such high-pitched marketing of Inclusive Framework, G20 FMs have struck a bullish chord at the success accruing from inclusivity mantra. They consider participation of developing countries at G20/OECD Inclusive Framework on BEPS as "key asset" in supporting a widespread implementation of BEPS package.

In a Communiqué dated 28th July 2016 issued at the end of G20 FMs & central bank governors meeting, they called upon all countries and jurisdictions that have not yet committed to the BEPS to do so and join the framework on an "equal footing".

FMs appreciated role of tax policies in promoting a fair and efficient international tax environment that diminishes the conflicts among tax systems. They underscored the effectiveness of tax policy tools in supply-side structural reform for promoting innovation-driven, inclusive growth, as well as the benefits of tax certainty to promote investment and trade.

They advised OECD and International Monetary Fund (IMF) to continue working on the issues of pro-growth tax policies and tax certainty.

IMF & its ilk believe that more developing countries will join the Inclusive Framework as that helps participate in the decision-making process on implementation of BEPS. Their participation will give them an opportunity to directly influence in the formulation of international tax rules.

In a jointly submitted report to G20 FMs, IMF, World Bank Group, the United Nations and OECD have given a slew of recommendations on participation of developing countries in tax reforms,

The report captioned ‘Enhancing the Effectiveness of External Support in Building Tax Capacity in Developing Countries', has suggested that developing countries should be assisted in preparing their respective medium-term revenue strategies (MTRS). It has proposed launch of three to five pilot MTRS by July 2017.

Another recommendation calls upon the international organizations (IOs) to develop a diagnostic tool/framework for assessing cross-border tax issues, covering avoidance, evasion and tax crimes.

The Report notes that good diagnosis is essential for successful tax reform - and so must be a key element of any MTRS. It cites the case of Myanmar where a thorough diagnosis of the situation led to the identification of specific organisational initiatives such as setting up a large taxpayer compliance operation that could begin to secure higher revenues.

OECD has taken inclusivity mantra to tax policy makers with a comprehensive working paper titled 'Tax Design for Inclusive Economic Growth.'

The Paper defines tax design for inclusive growth as tax policy which reconciles efficiency and equity considerations.

It believes this can be achieved either by minimising the trade-offs between efficiency and equity – meaning by reducing the equity costs of efficient tax reforms or by lowering the efficiency costs of equitable tax reforms – or by implementing tax reforms that enhance efficiency and equity simultaneously.

The paper has underscored the need to look at tax and benefit systems as a whole to fully assess the efficiency and equity implications of tax policies and to design tax reforms for inclusive growth.

It has also examined whether the basic design aspects of each tax can be improved to better achieve inclusive growth but also looks at how the interactions of taxes with other factors affect their efficiency and equity outcomes.

The Paper has enunciated certain tax policy principles to perk up reconcile efficiency, equity goals and inclusive growth by looking at each tax separately as well as at tax system as a whole.

It has categorized the principles into four broad pillars. These are (1) broadening tax bases; (2) strengthening the overall progressivity of the fiscal system; (3) affecting pre-tax behaviours and opportunities; and (4) enhancing tax policy and administration.

According to OECD, "These principles identify where inclusiveness and growth goals are aligned or where tax design can contribute to significantly reducing efficiency-equity trade-offs."

This analysis shows that BEPS is getting transformed into a bigger agenda for tax reforms for inclusive growth at the country and at the global levels. The success of these challenging reforms would ultimately hinge on implementation and mid-course correction.

Ends

 
 
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