IT is time to straighten out the idiom –"Heads I win; tails you lose". This expression should now be reworded as: Head I win; tails I win too in the global taxation arena. The trigger for this forthright message is the Group of seven rich countries (G7's) latest success to revise rules of the game in globalized economy to suit its interests.

The G7 oversaw Organisation for Economic Co-operation and Development (OECD) into clinching a global lop-sided tax reforms pact on 1st July 2021. Lop-sided because it is silent on certain developing countries' 15-years quest to levy customs duty on digital transmission of specified products.

The dichotomy in reforming global direct taxes and indirect taxes has become sharper and alarming after this agreement. More on this delayed indirect taxation reforms a bit later.

The agreement, among other things, moots 15% global minimum corporate tax (GMCT) on multinational Corporations (MNCs) of specified size in e-commerce domain. The preliminary pact is titled ' Statement on a Two-Pillar Solution to Address the Tax Challenges Arising From the Digitalisation of the Economy '.

Issued by the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting (IF), it is signed by 130 countries out of 139 IF members. Peru later became the 131 st signatory.

G20 Finance Ministers & Central Bank Governors have dubbed OECD pact as "historic agreement on a more stable and fairer international tax architecture ".

In Communiqué issued after 2-days meeting ending 10th July, they endorsed the key components of the two pillars on the reallocation of profits of multinational enterprises and an effective global minimum tax.

They urged IF to swiftly address the remaining issues and finalise the design elements within the agreed framework together with a detailed plan for the implementation of the two pillars by our next meeting in October. They invited remaining members of IF to join the agreement.

One of the core objectives of this pact is to regulate direct tax competition. It wants to stop the ' race to the bottom ' (RTTB).The unstated objective is to moderate the investment flows to capital-deficient developing countries. The 15% GMCT net is likely to be cast wide to cover all sectors and all MNCs over the medium to long term.

There is nothing wrong in moderating corporate tax competition for attracting investments, creating jobs and generating tax revenue for financing governance requirements including citizens' welfare. The concern over RTTB, however, appears hollow as it is well-entrenched in the field of the customs duty.

Import duties on thousands of products have touched rock bottom through pacts guided by World Trade Organisation (WTO) and through regional & bilateral free trade agreements (FTAs). This has impacted local manufacturing, jobs creation and customs revenue in developing countries.

Zero-import-tariff regimes hardly enable capital-deficient developing countries to enter into new manufacturing activities or scale up existing economic operations to ramp up their exports.

OECD agreement has dampened prospects of lifting WTO's 1998 moratorium on levy of customs duty on products such as software, films and music, 3D printing and other formats of electronic transmission (ET). These products attract import duty when they are shipped as compact disc, cinematographic films, books and video games, etc.

Mooted by the US in 1998, the Moratorium, has been extended regularly, due to inordinate delay in reaching an accord on levy of customs duty on digital transmission of products. The last extension was agreed by WTO's General Council on 10th December 2019.

WTO's Council on Trade in Services addressed the WTO work programme on e-commerce at its meeting on 1st July 2021. At the conference, a few members articulated their "well-known and divergent positions regarding the moratorium", according a WTO document.

At earlier Ministerial Conferences, members had agreed not to impose customs duties on electronic transmissions. The current extension of the Moratorium runs until the 12th Ministerial Conference. It will be held at Geneva during four-day period ending 3rd December 2021.

It is here pertinent to note that India and South Africa had proposed lifting of moratorium in a submission made in 2018. At WTO webinar on CSs on ETs held in July 2020, Prof. Abhijit Das,Indian Institute of Foreign Trade stated: "Removal of Moratorium is important for developing countries from many perspectives, including giving a boost to government revenue as well as for giving fillip to domestic producers of intangible goods ".

Similar concern has been elaborated well in a research paper (RP) captioned ' Moratorium on Electronic Transmissions: Fiscal Implications and WayForward ' published by United Nations Conference on Trade and Development (UNCTAD) in June 2020. It notes that upcoming or fast-growing new digital technologies such as 3D printing have the potential to "exponentially expand the trade in ET".

As put by RP, " The on-going trend shows that the use of 3D printing is growing very fast and the industry has expanded by 62% in 2019 since 2017. 3D printing has adversely impacted the export competitiveness of the labour abundant countries, shifting the comparative advantage towards capital abundant countries ".

RP adds: " It is therefore urgent for developing countries to support the removal of the moratorium in order to preserve their policy space for regulating the imports of luxury items and generating tariff revenues at the time of crisis. This will also assist their digital advancement by providing a level playing field to their budding digital industry ".

It has proposed a basis for deciding the scope of the Moratorium by using the trichotomy of goods, intangible goods and services. Adopting different classifications of ET, it has estimated the potential tariff revenue losses due to moratorium.

UNCTAD RP and other such works should be considered by IF while sorting out other unspecified issues relating to OECD pact. Even International Chamber of Commerce (ICC), which wants 1998 Moratorium to become permanent feature of digital trade, wants OECD to take call on indirect taxation.

ICC has, however, raised a panic call on the risk of withdrawal of moratorium.An ICC release, dated 17september 2019, quoted its Secretary General John W.H. Denton AO as saying: " The possible expiry of the moratorium on customs duties on electronic transmissions looms like an iceberg in the already treacherous waters of international trade. The potential disruptions caused by the imposition of tariffs on data could far outweigh any impacts we've seen from recent protectionist escalations. It is vital that governments address this issue with the urgency and attention it requires ".

In an accompanying Paper, ICC stated "The moratorium on customs duties on electronic transmissions ("moratorium") has become an indispensable aspect of the modern trading system and a central piece in the 70+ year long-term trend towards an international trading system as free as possible from barriers to the global exchange of goods and services. It is now time to make the Moratorium permanent by prohibiting customs duties and formalities on electronic transmissions ".

Like ICC, other stakeholders aligned to Western economic interests have lobbied for regularizing the moratorium to help the advanced countries ramp up export of digitalised products.

TheWashington-basedThe Software Alliance/BSA strongly pitched for continuation of Moratorium.In a position paper issued in October 2019, BSA said: "growth and innovation is threatened as countries are considering terminating this agreement and imposing – for the first time ever – customs duties on software, music, film, and other digital products and services transmitted electronically over computer networks. Such duties jeopardize US jobs and exports ".

OECD has implicitly favoured continuation of Moratorium in a policy paper on Moratorium debate released during November 2019. The Paper says: "careful consideration to all these issues, and not just revenue implications, should be given when thinking about whether or not to extend the Moratorium ".

It adds: "countries may also wish to think about the broader economic benefits that arise from the Moratorium. This includes lower prices for consumers (on whom the costs of tariffs fall), and greater export competitiveness. This broader view of costs and benefits allows for a more holistic understanding of countries' interests in the Moratorium, than a focus on estimates of lost tariff revenue alone ".

An irony in global minimum corporate tax (GMCT) on e-commerce MNCs is the zero duty on hardware and software that go into manufacture information, computer and telecom (ICT) products under WTO's Information Technology Agreement (ITA). ICT is engine of digitalized economy.

How is that RTTB is good under ITA & its ilk when the foremost concern today is to raise tax revenue to finance recovery of economy ravaged by Covid-19 pandemic? ITA would be reviewed by WTO Committee of Participants on the Expansion of Trade in Information Technology Products in September 2021.

An ITA-related agreement is 'Trade and Investment: Multi-Chip Integrated Circuits' (MCICs). It provides for duty-free treatment to MCICs, the building block of digital products. It was signed in 2005 by The United States, the European Commission, Japan, Korea and Taiwan in 2005.

MCICs agreement was arrived at under another group of these nations/jurisdictions. Named the Government/Authorities Meeting on Semiconductors (GAMS), China is sixth signatory to this arrangement. "National/regional industry associations may become members of the WSC only if their governments have eliminated", says a document hosted on the website of United States Trade Representative (USTR).

RTTB in customs duty extends to several other sectors. A notable case in point is 32-nation Agreement on Trade in Civil Aircraft (Aircraft Agreement). It mandates signatories to eliminate tariffs on civil aircraft,engines, flight simulators, and related parts and components, and to provide these benefits on a non-discriminatorybasis to other signatories.

According to USTR, the signatories have agreed provisionally to provide duty-free treatment for ground maintenance simulators, although this item is not covered under the current agreement. " It entered into force on January 1, 1980, and is one of two WTO plurilateral agreements (along with the Agreement on Government Procurement) that are in force only for those WTO Members that have accepted it ".

Yet another RTTB case in point is the 1994 Agreement on Trade in Pharmaceutical Products under WTO. Under this sectoral pact that has been expanded after periodic reviews, signatory countries agree to abolish import duties on all bulk drugs and their formulations. The customs duty elimination also covers over 7,000 active ingredients & related chemicals used in pharmaceutical supply chains.

Pharmaceutical Imports have grown by almost 14 per cent over the last 20 years, with imports valued at more than US$ 350 billion in 2018. Trade in pharmaceutical active ingredients and chemical components has also grown steadily. " Obtaining tariff and import statistics for these products can be a complex exercise ", says a WTO brief.

One can cite more instances of how G7 and other relatively well-placed nations have worked for zero-duty or low-duty regime to prise open markets of developing countries.

Time has come to end RTTB in both direct and indirect taxation domains to create level-playing field for all countries. Without level-playing field, recovery from unsustainable debt and pandemic would be uneven. The risk of debt-triggered financial meltdown of global economy would remain strong.