This Week in Taxation: IMF Urges Japan to Increase Taxes

The IMF may have provided the Japanese government with more arguments to raise taxes as the economy recovers from the impact of the pandemic. Japanese Prime Minister Fumio Kishida has used stimulus measures, along with tax incentives, to boost economic growth.

“Fiscal policy should be nimble and flexible, adjusting the scale and composition of support in response to epidemiological and economic developments,” the IMF said as part of its report on the Japanese economy.

Although Japan’s economy had stagnated long before the pandemic hit, the IMF was optimistic about the country’s growth prospects. Japan could see its GDP growth rate rise from 1.6% in 2021 to 3.3% in 2022, partly thanks to the government’s stimulus package.

Prime Minister Kishida shocked investors in October when he suggested raising the capital gains tax rate by 20% as part of fiscal consolidation. The so-called ‘Kishida shock’ saw spooked investors selling Japanese stocks in reaction.

“As we debate a new form of capitalism, various policies will be needed…to achieve a virtuous circle between growth and distribution,” Kishida said at the time. “We have to think about the tax on financial income. I brought it up as one of the various options.

The Japanese government has since shelved the proposal, but that doesn’t mean it will sit on the shelf indefinitely. The highest personal income tax rate is 55%, while the consumption tax is 10%. Japan may have to consider various tax increases to manage its debt burden.

Businesses want India’s 2022 budget to provide ‘clarity’ on equalization tax

The Indian government may be on the verge of addressing major issues with the equalization levy scheme and digital tax reform as part of its 2022 budget.

Indian taxpayers could get more clarity on the equalization levy on e-commerce transactions as well as the removal of withholding tax (TCS) provisions. The 2022 budget is an opportunity for reform in these key areas, but there are plenty of other fiscal issues to address.

The Indian government may announce proposals to adjust transfer pricing (TP) rules, including lower tariffs for companies with transfer pricing agreements (TPAs) at higher tariffs.

“The equalization levy is not part of the Indian Income Tax Act and is governed by a separate code. This raises questions about the use of the tax credit and treaty benefits in the hands of of the non-resident, so the government could consider introducing provisions clarifying these aspects,” said Sandip Mistry, associate tax director at Siemens.

In April 2020, India introduced a 2% Equalization Tax (EL) 2.0 on e-commerce sellers, applicable to non-resident e-commerce platforms selling goods and services. If a multinational like Amazon sold products online in India without a physical presence in the country, those transactions would theoretically be subject to the 2% tax.

Multinational companies have often called for more clarity on the LE. Tech companies claimed this unfairly affected certain sectors and increased the compliance burden.

However, the evolution of the OECD on pillars one and two and its report on addressing tax issues arising from the digitalization of the economy could mean that the Indian government could abolish the LE on e-commerce transactions.

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ITR Global Tax 50 2021-22: Zayda Manatta

In this exclusive interview, Zayda Manatta, Head of the OECD Global Forum Secretariat, tells ITR what taxpayers can expect from his team in 2022.

Zayda Manatta hasn’t let COVID-19 hold her back over the past year. As an international body made up of more than 160 countries, the Global Forum (GF) plays a crucial role in promoting tax transparency, but it has encountered obstacles during the pandemic.

Nonetheless, Manatta has overseen key developments in Exchange of Information on Demand (EOIR) and Automatic Exchange of Information (AEOI). Here she speaks RTI through the challenges and achievements of 2021, as well as its goals for 2022.

Read the full interview here

Next week at ITR

RTI is set to launch its Global Tax 50 ranking in February. Exclusive profiles of OECD tax officials and policymakers will accompany articles on the most important trends to watch in global taxation. Corn RTI never takes your eyes off the news.

The Indian government is expected to announce its 2022 budget on February 1. Many businesses are hoping for more clarity on digital tax reform and the future of the equalization tax, but the government needs to define its fiscal strategy to weather the economic fallout from COVID-19.

At the same time, internal tax teams are shifting budgets from compliance management to tax strategy for 2022. These teams must adapt as tax planning rules have changed dramatically from the days when corporate tax companies did not make the headlines.

Readers can expect these stories and more next week. Don’t miss the main developments. Sign up for a free trial for RTI.

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