New corporate tax laws aim to slash global inequity

Why is this happening now?

Negative attitudes towards corporate tax evasion aren’t new. Global organisations and national finance ministers have banded together in their disapproval towards the practice for years.

It was the pandemic, though, that motivated governments to begin chasing the losses they’re missing out on. That’s because government attempts to manage the impacts of COVID-19 resulted in global borrowing and spending hitting an all-time high.

In May, it was reported that $9 trillion was spent globally to protect citizens through furlough schemes, investing in healthcare resources, and implementing lowered tax rates for businesses that had operations halted by lockdowns.

As a result, governments spent more last year than they had since war times. Taxing multi-billion dollar companies who have avoided paying their taxes has now become a vital avenue for governments looking to cover their colossal debts.

What effects would this have on the global economy?

Glad you asked. Once the international agreement is passed, over 8,000 multinational companies will be required to comply with the minimum tax rate – including oil giants like BP and Shell, and global banks like HSBC and Barclays.

It is estimated that upward of a trillion dollars will be pumped back into national governments, money that is currently protected in financial firms off-shore.

Once in the hands of governments, this additional capital can be directed to the public social spending budget, which protects and improves the standard and quality of life for national citizens.

Consequently, benefits and grants programs will receive more funding, including financial packages which are relied on by the elderly, disabled, sick, and unemployed.

The strength of a country’s infrastructure and social welfare system depends on its GDP, put simply, the amount of money its economy generates in a year. National GDP is partly inclusive of the money a country receives from tax payments.

If you made it this far without being totally bored, (thanks) here’s a gift: you can see what percent of annual GDP your country invests into public spending here.

Without ensuring that large corporations correctly pay their taxes, governments would have to make the unethical decision to tax their own citizens higher.

To burden regular citizens with the responsibility of financially supporting governments in times of crisis, quite frankly, isn’t an option.

Come on, if Jeff Bezos made enough money at Amazon to launch himself into space for the day, it’s likely multinational business owners like him can deal with a minimum corporate tax rate of 15 percent.

Potential obstacles and the final takeaway

It looks like the biggest hurdle for implementing the new tax agreement will be the G20 conference, where the leaders of China, Russia, and India will need convincing that a global minimum tax rate is the right move.

Even with this challenge, finance leaders are confident that the new policy is secured by the biggest western economies’ commitment to its implementation.

Though some feel 15 percent minimum tax isn’t enough, the new G7 agreement has been met widely with international praise. It’s viewed as a step in the right direction, one that makes perfect sense in our increasingly digital and globally connected world economy.

It will provide governments with a new and additional source of income so significant that, if correctly invested, has the potential to improve the quality of life for millions.

Once new regulations are put into place, the world will be watching and asking: how are governments choosing to utilise this new sum of money? With investments in the right areas, this new law could be a huge catalyst for further social change.