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What is the Global Minimum Tax (GMT)? - UPSC Economy
What is What is the Global Minimum Tax (GMT)? in UPSC Economy?
What is the Global Minimum Tax (GMT)? is a key topic under Economy for UPSC Civil Services Examination. Key points include: Global Minimum Tax (GMT) aims to set a 15% minimum corporate tax rate globally.. GMT combats profit shifting by multinationals to low-tax jurisdictions, especially for intangibles.. It is a key outcome of the OECD/G20 BEPS project (Pillar Two).. Understanding this topic is essential for both UPSC Prelims and Mains preparation.
Why is What is the Global Minimum Tax (GMT)? important for UPSC exam?
What is the Global Minimum Tax (GMT)? is a Medium-level topic in UPSC Economy. It is tested in both Prelims (factual MCQs) and Mains (analytical answer writing). Previous year UPSC questions have frequently covered aspects of What is the Global Minimum Tax (GMT)?, making it essential for comprehensive IAS preparation.
How to prepare What is the Global Minimum Tax (GMT)? for UPSC?
To prepare What is the Global Minimum Tax (GMT)? for UPSC: (1) Study the comprehensive notes covering all key concepts on Vaidra. (2) Practice previous year questions on this topic. (3) Connect it with current affairs using daily updates. (4) Revise using key takeaways and mind maps available for Economy. (5) Write practice answers linking What is the Global Minimum Tax (GMT)? to related GS Paper topics.
Key takeaways of What is the Global Minimum Tax (GMT)? for UPSC
- Global Minimum Tax (GMT) aims to set a 15% minimum corporate tax rate globally.
- GMT combats profit shifting by multinationals to low-tax jurisdictions, especially for intangibles.
- It is a key outcome of the OECD/G20 BEPS project (Pillar Two).
- India's public debt-to-GDP ratio was 81% in 2022-23, as per the Finance Ministry.
- IMF's Article IV report provides crucial insights into India's debt and economic health.
- GMT seeks to ensure fairer taxation and global economic stability.
What is the Global Minimum Tax (GMT)?
Medium⏱️ 6 min read
economy
📖 Introduction
What is the Global Minimum Tax (GMT)?
The Global Minimum Tax (GMT) is a globally agreed minimum tax rate designed to address tax challenges arising from the digitalization of the economy. Its primary aim is to mitigate tax base erosion and prevent profit shifting by multinational corporations.
This initiative seeks to ensure that large multinational enterprises pay a fair share of tax, regardless of where they operate or where they declare their profits.
The currently suggested minimum tax rate under the GMT framework is 15%. This rate is intended to reduce the incentive for companies to move their profits to low-tax jurisdictions.
The core objective of GMT is to curb the practice of multinationals moving profits to low-tax jurisdictions, irrespective of where their actual sales or economic activities occur. This prevents companies from gaining a financial advantage by exploiting tax differentials between countries.
Challenges of Profit Shifting
There is a significant trend of companies shifting income derived from intangibles, such as patents, software, and Intellectual Property (IP) royalties, to designated tax havens. This strategy allows them to sidestep higher tax obligations in their home countries, leading to revenue loss for governments.
India's Current Debt Scenario (as per IMF Article IV Consultation Report)
The International Monetary Fund (IMF) released its annual Article IV consultation report on India, providing an assessment of the country's economic health, including its debt sustainability and exchange rate management.
Government Current Debt Levels:
- The central government’s debt stood at ₹155.6 trillion, approximately 57.1% of GDP by March 2023.
- State governments carried a debt of about 28% of GDP.
As stated by the Finance Ministry, India’s public debt-to-GDP ratio was 81% in 2022-23. These figures are crucial for assessing the nation's fiscal health and its capacity for future economic growth and stability.
💡 Key Takeaways
- •Global Minimum Tax (GMT) aims to set a 15% minimum corporate tax rate globally.
- •GMT combats profit shifting by multinationals to low-tax jurisdictions, especially for intangibles.
- •It is a key outcome of the OECD/G20 BEPS project (Pillar Two).
- •India's public debt-to-GDP ratio was 81% in 2022-23, as per the Finance Ministry.
- •IMF's Article IV report provides crucial insights into India's debt and economic health.
- •GMT seeks to ensure fairer taxation and global economic stability.
🧠 Memory Techniques
95% Verified Content
📚 Reference Sources
•International Monetary Fund (IMF) - Article IV Consultation Reports
•Organisation for Economic Co-operation and Development (OECD) - Inclusive Framework on BEPS