Statsguru: 6 charts explain how corporate taxes help govts globally

US Treasury Secretary Janet Yellen called for a global minimum corporate tax to counter the profit shifting by large companies. There seems to be a renewed focus on the role of the government after the coronavirus crisis, and this has been especially true for the US since Joe Biden became the President. 

Tax havens such as British Virgin Islands, Cayman Islands, Mauritius, Ireland, among many others, which have been the popular jurisdictions for big corporations, reduce the potential revenue that might accrue to home governments. A look at select countries — four advanced economies, three emerging markets and India — shows the extent to which corporate taxes help governments. 

For instance, corporate taxes give the US government only worth 1 per cent of gross domestic product (GDP) as revenue, much lower compared to emerging markets, and slightly less than the UK, Germany and France. However, overall government revenue is better in advanced economies, shows chart 1. This is likely due to better realisation of revenue from personal income tax and indirect taxes. US companies, thus, may be contributing the lowest among peers to the government. 

In general, the tax rate on companies has been declining over the last decade. Across various regions, as chart 2 illustrates, corporate tax rates fell over the last decade. The tax rate cuts were most pronounced in the North America region, mostly owing to the US after the Donald Trump administration reduced taxes. 

How well has India done on corporate taxes? In September 2019, Finance Minister Nirmala Sitharaman rolled out a new low tax regime for Indian companies. This has hurt revenues. From earning close to 3.3 per cent of GDP from corporate taxes, India now gets close to 2.4 per cent, shows chart 3. Revenue from personal income tax has improved only marginally. Meanwhile, the Centre lets go as much as 0.5-0.6 per cent of GDP worth of revenue in the form of incentives to companies, reveals chart 4. 

But what may be more worrying is that the large Indian companies pay less tax, chart 5 finds. This has been the case for many years and there is no visible change. Furthermore, companies owned by the government pay tax at a much lower rate than private companies (chart 6), the Union Budget documents show.

StatsGuru is a weekly feature. Every Monday, Business Standard guides you through the numbers you need to know to make sense of the headlines