Current Affairs (7th June 2021)

Global minimum corporate tax rate

Context:

• Finance Ministers from the Group of Seven (G7) nations have reached a landmark agreement in London setting a global minimum corporate tax rate.

About:

• G7 has backed a minimum global corporation tax rate of at least 15%.
• They also seek to put in place measures to ensure that taxes are paid in the countries where businesses operate based on the principle of ‘Significant Economic Presence’.

How would a global minimum tax work?

• The global minimum tax rate would apply to overseas profits of a multinational.
• The envisaged framework allows individual governments to set whatever local corporate tax rate they want.
• But if companies pay lower rates in a particular country, their home governments could “top-up” their taxes to the minimum rate, thus eliminating the advantage of shifting profits.

Reasons for the move:

• A global minimum corporate tax will allow the major economies to discourage multinationals from shifting profits — and tax revenues — to low-tax countries.
• This proposal from the major economies aims to reduce tax base erosion without putting their firms at a financial disadvantage, allowing competition on innovation, infrastructure, and other attributes.

Significance:

Reduce tax base erosion:

• This measure will help close cross-border tax loopholes used by some of the world’s biggest companies, thus will help limit base erosion and profit sharing (BEPS).
• Increasingly, income from intangible sources such as drug patents, software and royalties on intellectual property has migrated to the low tax jurisdictions, allowing companies to avoid paying higher taxes in their traditional home countries.

• As per some estimates, countries are losing $427 billion every year to tax havens. India suffers an annual loss of $10.3 billion from global tax abuse.

In tune with changed pattern of economy:

• This agreement marks a much necessary reform of the global tax system to make it fit for the current global digital age where cross-border digital services are gaining prominence.

End the so-called race to the bottom and its negative consequences:

• The introduction of a global minimum corporate tax will contribute to ending the decades-long “race to the bottom on corporate tax rates”, in which countries have resorted to ultra-low tax rates and tax exemptions to lure multinationals companies to invest.
• Such measures have cost such countries hundreds of billions of dollars whereas the corporate entities have only grown richer.

Form the basis of a global pact:

• This landmark agreement could form the basis of a worldwide deal.
• The Organization for Economic Cooperation and Development has been coordinating tax negotiations among 140 countries on rules for taxing cross-border digital services and curbing tax base erosion, including a global corporate minimum tax. The OECD and G20 countries aim to reach consensus on both by mid-year.

Move towards more equitable taxing rights:

• The agreement has committed to reaching an equitable solution on the allocation of taxing rights. It will focus on protecting the interest of the market countries by awarding such countries certain degree of taxing rights on the profits of the multinational enterprises.
• This will help ensure that MNCs would pay taxes where they operate and record their profits from based on the concept of ‘Significant Economic Presence’.

Challenges:

• Any final agreement could have major repercussions for low-tax countries and tax havens and is bound to be opposed by such countries.
• Though there seems to be broad agreement on the framework of a global minimum corporate tax, there continue to be differences over the rate of such a tax.
• The inclusion of investment funds and real estate investment trusts under such a system could also lead to some differences during the negotiations.

Crop loss due to pests

Context:

• The Food and Agriculture Organization (FAO) estimates that at least 40 per cent of the world’s agricultural crops are lost to pests each year.

About:

• The report, titled Scientific review of the impact of climate change on plant pests, was prepared by the University of Turin in Italy. It was published on June 2, 2021.
• The scientific review was prepared under the auspices of the Secretariat of the International Plant Protection Convention (IPCC) and was hosted by FAO.
• It is one of the key initiatives of the International Year of Plant Health, which will come to an end in June this year.
• The United Nations declared 2020 as the International Year of Plant Health. The Year was extended until July 1, 2021, due to the novel coronavirus disease (COVID-19) pandemic.
• Invasive pests cost countries at least $70 billion annually and are one of the main drivers of biodiversity loss, according to estimates from the Food and Agriculture Organization of the United Nations (FAO).
• The scientific review analysed 15 plant pests and found that climate change will increase the risk of pests spreading in agricultural and forestry ecosystems, especially in cooler Arctic, boreal, temperate, and subtropical regions.

Reasons:

• Half of all emerging plant diseases are spread by global travel and trade, which have tripled in volume over the last decade. Such movements threaten food security in general.
• The weather is the second-most important factor, according to the report.
• Use of methods and equipment that hamper the growth of plants because of introduced bugs in them.
• The report noted that a single, unusually warm winter can be enough to assist the establishment of invasive pests.
• A few pests such as fall armyworm, which feed on crops like maize, sorghum and millet and Tephritid fruit flies (that damage fruit and other crops) have already spread due to a warmer climate.
• Others, such as desert locusts (the world’s most destructive migratory pests), are expected to change their migratory routes and geographical distribution because of climate change.

Impact:

• Xylella fastidiosa is a deadly bacterium that attacks economically important crops such as olive, citrus or plum trees and grapevines. Since 2015, it’s been rapidly spreading from the Americas to Europe and Asia.
• Once Xylella fastidiosa infiltrates a plant, it is there to stay – it starves the plant of water until the plant dies or becomes too weak to grow fruit.
• The oriental fruit fly (Bactrocera dorsalis) has affected trees such as avocado, banana, guava and mango in at least 65 countries. In Africa, import trade bans due to oriental fruit fly infestations cause annual losses of around $2 billion.

Recommendations:

• When combating pests and diseases, farmers should adopt, and policymakers should encourage the use of environment-friendly methods such as integrated pest management.
• There is an urgent need for more research as well as investment in strengthening national plant health systems and structures.
• Regularly monitoring plants and receiving early warning information about emerging threats, helps governments, agricultural officers and farmers take preventive and adaptive measures to keep plants healthy.

Clean Energy Ministerial’s (CEM) – Industrial Deep Decarbonization Initiative (IDDI)

Context:

• India along with Government of United Kingdom launched new workstream to promote industrial energy efficiency under the Clean Energy Ministerial’s (CEM) – Industrial Deep Decarbonization Initiative (IDDI) at the 12th Chief Energy Ministerial (CEM).

What is IDDI?

• It is a global coalition of public and private organisations who are working to stimulate demand for low carbon industrial materials.
• In collaboration with national governments, IDDI works to standardise carbon assessments, establish ambitious public and private sector procurement targets, incentivise investment into low-carbon product development and design industry guidelines.
• Coordinated by United Nations Industrial Development Organization (UNIDO).
• Members: The IDDI is co-led by the UK and India and current members include Germany and Canada.

CEM:

• It was established in December 2009 at the UN’s Framework Convention on Climate Change conference of parties in Copenhagen.
• CEM is a high-level global forum to promote policies and programs that advance clean energy technology, to share lessons learned and best practices, and to encourage the transition to a global clean energy economy.
• 29 countries are part of CEM including India.

Monetary Policy Statement, 2021-22

Context:

• The Monetary Policy Committee (MPC) held its meeting recently.

Rates:

• Keep the policy repo rate under the liquidity adjustment facility (LAF) unchanged at 4.0 per cent.
• Keep the reverse repo rate under the LAF unchanged at 3.35 per cent.
• Keep the marginal standing facility (MSF) rate and the Bank Rate unchanged at 4.25 per cent.

Additional Measures announced by RBI to revive the economy:

• On-Tap Liquidity Window for Contact-Intensive sectors:
• A separate liquidity window of Rs. 15,000 Crore is being opened till March 31, 2022, with tenures up to three years, at the repo rate.
• Under this scheme, Banks can give fresh lending support to Contact-Intensive sectors like hotels, restaurants, travel, rent-a-car service providers and saloons.
• Special Liquidity Facility of Rs. 16,000 Crore to SIDBI, for on-lending / refinancing through novel models and structures at Repo Rate, for a period of up to one year. This is to further support credit requirements of MSMEs, including those in credit-deficient and aspirational districts.
• Expansion of coverage of borrowers under Stress Resolution Framework 2.0, by enhancing maximum aggregate exposure threshold from Rs. 25 Crore to Rs. 50 Crore for MSMEs, non-MSME small businesses and loans to individuals for business purposes.
• Regional Rural Banks can now issue Certificates of Deposit (CDs). Further, all issuers of CDs will be permitted to buy back their CDs before maturity, subject to certain conditions. This will facilitate greater flexibility in liquidity management.
• National Automated Clearing House (NACH) to be available on all days of the week (currently available only on bank working days), effective from August 1, 2021. NACH is a popular and prominent mode of direct benefit transfer to large number of beneficiaries.